Women retiring today are more financially independent than their mothers and grandmothers were. They have spent more time in the labor force than their forbears. Many have held highly paid jobs. As a result, many more women are eligible for their own Social Security and pension benefits than ever. In addition, the Retirement Equity Act helps to ensure that married women will not unknowingly miss out on survivor benefits from pensions for which their husbands might be eligible.
Even so, women face financial challenges. For instance, intermittent work history and part-time employment with few benefits have been the norm for millions of women who are now about to retire. Women have also generally earned less than men over their working lives.
The result is that women generally have lower savings accounts, Social Security benefits, pension benefits, and 401(k) accumulations than men. This has long-term implications since the life expectancy of women is longer than that for men. It is compounded by the fact that women typically marry men older than themselves, so many spend more years alone in old age. Their retirement years frequently include periods of caring for spouses and other older relatives as well.
Urgent: All women need to get a big picture understanding of their family finances, even if not directly involved with managing the money. This prepares them to handle not only everyday finances but also the future financial challenges of retirement.
Getting Papers in Order
The decisions women face in retirement range from choosing the family and personal papers to keep in a safe place to deciding how to handle special needs and situations.
Paperwork gathering is especially critical when retirement is approaching. Women should know the location of all important papers. They should also tell the location to their adult children (or key relative or friend).
If they already have a will, they should update it. If they do not have a will, now is the time to draft one.
A married woman should make sure her husband has a will and know its location. But ideally, married couples will make out wills together, and each spouse will know how the other intends to dispose of property. Both should also have a living will and durable power of attorney for health care, which are documents providing guidance on end-of-life preferences.
Figuring Out How Much Retirement a Will Cost
Women who are thinking about retiring should take a careful look at how much money they are likely to need in retirement and the possible sources of this money. They should be aware that, if they spend resources too fast, they may encounter serious financial problems later on. That is especially so since women live longer than men on average, and most often outlive their husbands and a few will live beyond age 100. A financial planner/adviser can provide personalized assistance and advice. Online calculators can help as well.
Many retirement experts recommend that retirement income replace 70 percent to 80 percent of pre-retirement earnings to maintain pre-retirement living standards. That can work well if the woman has moderate retirement savings, stable health care premiums and little change in consumption. Unexpected expenses or an active retirement could require a higher replacement rate.
Retirees also need supplemental health insurance plus a contingency fund to pay for health care costs not covered by primary insurance (typically Medicare). For couples, retirement resources must last for the lives of both. For singles, estimate the need at about 75 percent of the need for a similarly situated couple.
Unfortunately, few options exist for retired women who do not have an assured, adequate stream of income and health care insurance. One thing they can do is opt for a lower standard of living - for instance, by moving to a smaller home or less expensive community. They can also strive to stay healthy and thus avoid out-of-pocket health and long-term care costs.
Another option: Women can work longer. This has many advantages. Women will gain more time to save, may have higher earnings that replace lower earnings years in the Social Security benefit formula, and will need to finance fewer years of retirement. In addition, for each year they work between age 62 and age 70, they will receive higher monthly benefits from Social Security. This can make a big difference later in life when out-of-pocket health costs often soar.
Reviewing the Retirement Plan
Because women live longer than men and have, on average, lower Social Security and pension benefits, women should pay a good deal of attention to survivor benefits. Here are some factors to review:
- Defined benefit (DB) pensions. These are also called traditional pensions. They typically pay out retirement benefits as monthly income. DB plans may also offer a lump-sum distribution option. Married couples with DB plans should consider taking a joint and survivor income if they want benefits to be paid to the survivor after the first spouse dies. Since women tend to live longer then men, electing this option could make a big difference in a woman's later years.
- Defined contribution (DC) plans. These plans allow workers to deposit money into various investment accounts, where it grows tax deferred. An example is a 401(k) plan. At retirement, retirees can opt to take money out via an immediate lifetime annuity (which makes monthly payment to the retiree for life) or take a lump-sum distribution. Those having no source of monthly income other than Social Security may want to consider the annuity option, at least for part of their money. Those with additional sources of monthly income might benefit from either option.
When should one start taking Social Security? This is one of the most important decisions women can make. Social Security accounts for half or more of the retirement income of nearly six in 10 older women (aged 65+) in beneficiary families. For about one in six older women, it is the only source of income.
Here is a general guideline: The later the start date, the larger the monthly benefit. However, women need to consider several other factors too.
For instance, married women and divorced women who had been married for at least 10 years to a worker eligible for Social Security can be entitled to Social Security benefits in one of three ways: 1) As a retired worker. 2) As a spouse or survivor of an eligible worker. 3) As a dually-entitled beneficiary.
Men can qualify for benefits in the same way. But due to their generally higher career earnings, they rarely receive spouse or survivor benefits.
Important: Husbands who delay collecting Social Security until they are age 70 will ensure that their wives have the largest survivor benefit possible.
Assessing Divorce and Other Special Situations
Women face a number of retirement decisions that don't fit the broad categories above. The following are examples:
- Divorce: As noted, if married for at least 10 years, a divorced woman is eligible for Social Security benefits and, if her ex-husband dies, survivor benefits based on her former husband's earnings record. She will receive either her own retired worker benefit or the spouse or survivor benefit, whichever is higher.Women who are in the process of divorcing can generally secure rights to pension benefits of the husband, but this is subject to negotiation. They need to understand their husband's benefits and know which benefits have legal protections that apply to them. Divorcing women should also make sure their lawyer has expertise with Qualified Domestic Relations Orders (QDROs). It is very important that a QDRO be written correctly; the format varies by state. Public employee benefits have different rules, but the benefits can be divided on divorce as well.
- Women living with a partner: Unmarried women living with a partner generally lack the same protections as spouses except in states that recognize common law marriages. Common law marriage requirements vary by state. Cohabiting couples should work with a lawyer and financial advisor to ensure that the surviving partner inherits, retains, or acquires the rights to specified assets. They should make these decisions well before retirement.
- Women in second (or subsequent) marriages: Remarriage raises complicated financial planning decisions, especially when children and/or substantial assets are involved. Seeking the advice of a financial planner and tax advisor is a good idea.
- Long-term care insurance. this is a particularly important consideration for women, since it is common for women to live many years alone in old age. Some women have no family members available to help them, at least not on a regular basis. The insurance will help pay for their home and nursing care when they are frail, and it may provide access to care advisors who will offer guidance.
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