Women and Retirement

E*TRADE Securities2

Generally, both men and women have the same long term financial goal: To live comfortably in retirement. However, many studies show that women may have more hurdles to achieving this goal than men. For example, women typically have less lifetime earnings, and thus, less retirement savings than men. Women also tend to invest more conservatively, sometimes making their rates of return on investments lower than those of aggressive investors. To complicate matters further, women run a greater risk of outliving their savings due to longer lifespans and more years spent in retirement.

While certainly not all women will face these challenges, for those that do, know that there are steps that can be taken today to overcome these obstacles and plan for retirement tomorrow.

Women earn less than men and have less lifetime savings

Women have made significant strides towards equality. However, a significant earnings gap still exists between the sexes.

  • In 2014, women who were full-time wage and salary workers had median usual weekly earnings of $719. On average in 2014, women made about 83% of the median earnings of male full-time and salary workers ($871).† 
  • Women are more likely than men to work part-time. Women who worked part-time made up 26% of all female wage and salary workers in 2014. In contrast, 12% of men in wage and salary jobs worked part-time.† 

Lesser earnings and fewer years of full-time work outside the home often may mean fewer dollars and less opportunity to contribute towards a retirement plan. Those who work part-time may often be excluded from their employer’s retirement plans. What’s more, women are more likely than men to leave the workforce to take care of children. This interruption can result in less money saved for retirement.

But don’t despair. There are some things you can do today to increase your retirement savings.  Be a little stingy; make a serious effort to take control of your own retirement planning. If you are eligible to participate in an employer plan, contribute enough to at least take advantage of any matching contributions. Do you generate income from self-employment? For example, do you sell real estate, beauty products, or work as an independent contractor? If yes, did you know you are able to open your very own retirement plan, such as an Individual 401(k), a SEP IRA, or SIMPLE IRA? 

Even if you don’t work outside the home, if you are married and file taxes jointly, you can make a contribution to your own Traditional or Roth IRA. These are known as spousal contributions and you are eligible to contribute up to $5,500. If you are age 50 or older, you can save more by taking advantage of a $1,000 catch-up provision, raising the maximum contribution limit to $6,500. 

If you are married and your partner will be entitled to a pension, you can take advantage of joint and survivor rules. If elected, these provisions ensure that you will continue to receive pension payments in the event your spouse dies before you.  If you are divorced, you may be entitled to a portion of your ex-spouse’s retirement benefit if the court issues a Qualified Domestic Relations Order (QDRO).  Even if you are divorced, but were married for at least ten years, you may qualify for Social Security benefits based on your ex-spouse’s work history. This benefit may result in a larger payout to you or could entitle you to benefits for which you may not otherwise qualify, but will not affect your ex-spouse’s benefits.  

Women live longer and invest more conservatively then men

On average, a female retiring at age 65 can expect to live another 20 years, 2 years longer than a male retiring at the same age.†† Why is this problematic? Since women tend to live more years in retirement, there is a greater chance of exhausting savings. Another challenge is that women tend to invest more conservatively then men. Typically, more conservative investments provide lower risk, but they can also provide less return. This tradeoff could lead to having less money in retirement. 

Certainly for some, conservative investing is appropriate, but it’s disadvantageous for anyone to adopt this or any other strategy if uninformed of alternatives. So learn about different investment options, such as stocks, bonds, mutual funds, ETFs, and CDs to determine which is right for you. A good rule of thumb is to reduce exposure to risk by combining a variety of investments. At E*TRADE, we offer online tools and education for self-directed investors. For those looking for one-on-one guidance, E*TRADE Financial Consultants, located in 30 branches, can help you plan for retirement in-person or by phone.

Final thoughts

As you prepare for retirement, resist the urge to use your retirement account as a source of emergency funds. Money for retirement should not be used for non-retirement purposes unless it’s completely unavoidable.

Be prepared for the unexpected. Know where your families’ financial information, such as bank and retirement statements, will or trust papers, and insurance policies are located.  If you have young children, do you have adequate life insurance coverage in case of you or your partner’s death to make up any lost income? Have you reviewed and updated the beneficiary information on your accounts to account for any recent life events?

Check titling on property. Is your name on the house and on the savings or checking accounts?  If your spouse dies, can you access the funds to take care of any immediate needs?

If you’re in or near retirement, make sure that you have adequate health care coverage. Check out the benefits of Medicare and any employer-sponsored health plans to ensure you’ll be covered. If you aren’t sure you have enough saved, think about retiring later or consider part-time work. Delay taking Social Security to gain higher benefits. Consider downsizing your home, or moving to a state with no state income tax.

Finally, keep an eye on how your investments are doing and whether changes are needed. The financial world and your life will be full of changes even in retirement, so make sure your financial plan continues to reflect your goals and circumstances. Check your investment performance at least quarterly and consider rebalancing your portfolio every six months to one year.  Remember to seek help if you need it. Call us at 1-877-800-1208.

† U.S. Bureau of Labor Statistics, Highlights of Women’s Earnings in 2014, November 2015. 

†† U.S. Department of Labor, Women and Retirement Savings, September 2015.