This article by WealthChoice President Bridget Grimes was recently published in the September 2017 issue of the DRI Newsletter Sharing Success.
We’ve noticed the trend of women professionals choosing to work longer. Having income longer can allow for living a better quality of life now, rather than putting off until retirement. Recently, the 17th Annual Transamerica Retirement Survey of Workers published their findings on women and retirement.
The gist is that women continue to be at a greater risk for not achieving a financially secure retirement than men, even with the plan for working longer.
We wanted to share some interesting findings from this important study with you, and some steps you can take to make sure your retirement is financially secure.
Working longer isn’t enough for financial security
Over the past few years our discussions with women professionals have made it clear that most women are planning to either delay retirement, or keep working indefinitely. The Transamerica study confirmed that 50% of the women in their study plan to work after they retire, 53% plan to retire after 65, and 13% don’t ever plan on retiring.
So, while its positive news on the income front that most women are planning to work late into life, the financial challenges unique to women still exist.
What are some of the top challenges women have for retirement?
For starters, the first and most basic step to financial security, having an emergency fund, has women way behind. The study found average emergency fund savings for women was $2000.
Only 10% of the women from the study were “very confident” in their ability to fully retire with a comfortable lifestyle.
Which leads us to the fact that when asked how much they need to retire, 56% guessed. They had no idea how much they need, so estimated $500,000.
Good news is that 75% of women who have an employer retirement plan participate in the plan, but only contribute on average 6% of their salary. With 47% of all women expecting their retirement accounts, savings, and investments to be their primary source of retirement funding, they may not be contributing enough. And if they don’t know how best to invest the money in these accounts, they are leaving the growth and security of their retirement fund to chance.
If working past 65 is the plan for most women, only 62% said they are staying healthy, 42% are keeping their job skills up to date, and 54% are focused on performing well at work.
I want to be financially secure in retirement. What steps can I take?
1. Save More. Are you saving as much as you can? Women contribute less to their 401k plans then men, and need more money in retirement. With women contributing an average of 6% of salary, there may be opportunity to increase your retirement account contributions. Right now the maximum annual contribution for a 401k is $18,000, and if you are 50 and over, you can contribute an additional $6000. Incrementally increasing your contribution is a way to get used to having less to spend over time. For our clients who receive a bonus, we often suggest saving half of that bonus for goals (and applying it to their 401k if that is an option), and allowing themselves to spend the rest.
2. Make sure you get your full employer match. Are you taking full advantage of your employer match to your retirement account? Employer matches are a wonderful thing: This is essentially free money for you. If your employer matches a percentage of your contribution, maximizing that match should be a given.
3. Have a retirement strategy. Spend some time thinking about your future and your priorities, then detail out your goals. Don’t just guess about how much you need. We published a blog on resources to help you determine if you are on track: Am I On Track to Retire These techniques can give you a rough idea of how much you need for retirement. Once you know that, plan to save what you need incrementally, and automatically.
4. Position yourself for working longer. If you plan to work past 65, make sure you can do it. Are you healthy? Are you staying relevant to your industry? Are you continuing to network? If you want the option to work longer, it’s important to take proactive steps. Whether this means wellness steps such as meditation, good nutrition, or fitness, your overall health will affect your ability to continue to work and to live a full life.
Likewise, being in demand for work and maintaining your value so you stay in demand are critical. Here we suggest business coaches and peer to peer mentoring. And keep yourself visible. An Executive Coach we recently spoke with stressed the importance of networking to stay visible and to make new connections, regardless of your professional level and experience.
5. Take ownership of your current financial situation. Know how much you spend and where you spend it. Many folks we know have no idea how much money they spend, or where it goes. Once you know that, you can choose what expenses are most important to you, what you can cut and where you can allocate money differently. It’s how we help clients fund goals they have. Create a budget and include the family in these discussions when expenses involve other family members, like older children and aging parents. Sophia Bera of Gen Y Planning posted a blog with some terrific budget tools. Tracking your expenses will help you to know how much your life costs so you know with more accuracy how much you need in retirement.
6. Educate yourself. If women rely most on their retirement accounts, savings and investments to provide for their retirement costs, make sure you know how best to invest that money. In addition, different types of accounts are taxed differently when you take money out. Know the tax implications of distributions from retirement and non-retirement accounts, restrictions on when you have access, and penalties if you withdraw incorrectly. In addition, know when it’s best for you to take your Social Security benefit. Interestingly, 27% of women from the study expect to rely on Social Security as their primary source of income, though a full 82% aren’t sure it will be there for them when they need it.
7. Have a backup plan. Have an emergency fund equal to 3-6 months of fixed expenses, keep your job skills current, make sure you have adequate risk management in place (life insurance, disability), and know where you could cut costs if you needed to. We know that on average women outlive men, and most women wind up single later life. In addition, the divorce rate among people over 50 has more than doubled since 1990, according to Bowling Green State University analysis. So, chances are as a woman you may wind up single later in life. Make sure you have a plan by having cash on hand, being marketable, having adequate insurance, and again, knowing how much money you need to live.
8. Know the financial costs of your actions before you commit to them. Before you make big decisions that can impact your future financial stability, such as caring for an elderly parent, reducing hours to raise your children, deferring retirement savings for college funding, just to name a few, know the trade-offs and your options and have a plan that will lessen the impact on your financial security. So much of financial planning is give and take driven by priorities. Knowing the costs of actions will help you evaluate your decisions before you make them. Choosing to limit retirement contributions in favor of funding college for a child, for example, may have long term implications on your financial security, so it is best to weigh all options first.
Women have most definitely made progress professionally, but they still have substantial risk factors when it comes to financial security. While working longer can be helpful, it alone is not enough to provide the financial security women need in retirement.
Our unique risks such as living longer, earning less than men, saving less for retirement, having reduced Social Security benefits, and working reduced schedules to accommodate aging parents and children, require that we have a plan for our retirement.
Taking incremental steps like the ones we suggest above can position you better for a happier, healthier, and wealthier life now, and down the road. And at the end of the day, we believe money doesn’t buy you happiness, but it does give you choices.
If you’d like to learn more about how we at WealthChoice help women executives with retirement strategy, please contact us.
