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Common Retirement Income Issues for Women

Posted by Larry Jones on May 24, 2022 9:30:00 AM
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Why Women are Special:

James Brown sang "This is a man's world. But it wouldn't be nothing without a woman or a girl." It's debatable whether it's still a man's world in 2021, however, when it comes to financial planning for the fairer sex, there can be some unique challenges. In my parent's day planners were accustomed to formulating financial plans primarily for families. Divorce and cohabitation was much less common. But today, nearly every situation is unique, and any planner that doesn't take the 21st century into account may be missing things.

There are a number of financial issues that are unique to the X chromosome dominant person.

The Path to Financial Independence for Women:

There can be a number of issues that need to be considered when it comes to females. Any cut and dried statistic on women, when it comes to finances can be misleading. Here are 7 areas that need to be looked at:

1. Women are, according to the Department of Labor, less likely to receive a pension at work.

Ladies typically spend more time outside of the workforce than men (see #5 below), which has an adverse effect on pension accumulations. Regulators and politicians are making much hay with this statistic, but like it or not, your plans need to take into account any pension shortfalls.

2.Women traditionally have lower earnings, which makes it harder to save for retirement.

This stat may be skewed over the entire workforce because of other factors such as taking time off for maternity leave, or caregiving duties, and may not reflect any income discrimination at all. Or it may. Again, the reasons behind it aren't the problem of the planner, but factoring it in is.

3.They typically experience higher turnover than men, and so they are more adversely affected by company retirement plan vesting schedules.

Most company retirement plans have vesting schedules attached to them, which can be hard on women. If you have to wait five years to become 100% vested, but leave after three to become a full-time mom or caregiver, you may forfeit a good portion of what you and your company have contributed. When you go back to work, you'll start all over again.

4.Women outlive men, and so, all else being equal, they need to save more than men.

This may be the revenge of the Almighty on all those men who made higher salaries and pension plans, while you were taking care of others. You get to live longer! But living longer means you need more money to live on. Mortality calculations are important when doing financial planning for women.

5. They are more likely to be caregivers than men, and may forego an income to care for a loved one.

For some reason, when it comes to taking care of the children, or mom and dad, the overwhelming number of caregivers are women. That's a badge of honor for the fairer sex, but can lead to signficantly less money when you retire.

6. They are more likely to be single, or widowed at retirement, and the entire financial burden of retirement will fall on them.

Since women do, in fact, live longer than men any well constructed retirement income plan must factor in the possibility of the spouse being absent. This is the number one reason for the financial distress of older women. Surveys have shown that about 70% of women who lived below the poverty level in retirement, didn't until their husbands passed away. Improper planning left them in a pickle. The abrupt removal of spousal income must be planned for. When one dies (or leaves) pension and social security calculations can change drastically.

7. And finally, they tend to invest pension assets too conservatively, and thus self-inflict an additional savings burden on themselves.

Men are risk-takers (and hunter-gatherers, speak in grunts, etc.). Women tend to be much more risk-averse. Over the long haul the tendency to avoid risk will usually cause the value of a portfolio to be much less than it could have been. 

 It’s clear that women present a unique set of circumstances that a good planner needs to be aware of.  

Is your advisor familiar with these issues that are unique to you as a woman?

He or she should be. All of the above challenges are easily handled, as long as they are taken into account. A good financial plan will consider these factors, as well as other things such as what stage of life you're in, your tax situation, family issues, health issues, and asset protection.

Let us help you reach your financial goals. You'll be glad you did!


Topics: Financial Planning for Women

What you don't know can hurt you!

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