It's no secret that women face greater financial challenges in retirement than their male counterparts do. Collectively, women earn lower salaries than men earn, are more likely to work part-time or have fewer years in the workplace due to caregiving roles, and have more years in retirement because of longer lives.
A new study by the National Institute on Retirement Security (NIRS), titled "Shortchanged in Retirement," looks at the retirement challenges of women as the traditional three-legged retirement stool of pensions, savings, and Social Security degrades. It's not all grim news – for example, the study found that a gender gap in eligibility for retirement plans has narrowed, resulting in men and women having the same overall participation rate. However, most of the findings are sobering.
According to the study, women are 80% more likely than men are to be living in poverty at age 65 and above. Within the narrower range of ages 75-79, women are three times more likely to be living in poverty.
Many women of the Baby Boomer generation realize this and are working longer as a result. The labor force participation among women nearing retirement age (55-64) has grown steadily since the 1980s, from rates near 42% to a peak of 60.8% in 2010. The last data point of 59.2% in 2015 remains relatively high in historical terms.
How well does that extra working time pay off for women? It likely increases Social Security benefits, assuming that each working year replaces a previous year of lesser salary in earnings calculations. Social Security benefits are calculated based on the top 35 years of inflation-adjusted earnings. That's extremely important, given the findings that women who are divorced/widowed and over age 70 derive most of their income from Social Security.
The industry in which a woman works has a large effect on retirement readiness – not just from a salary perspective, but also from the style of retirement plan. The study found that women in the health care, education, and public administration fields (approximately 40% of employed women, according to the study) have higher incomes in retirement and lower rates of poverty.
These fields are more likely to have defined benefit plans (traditional pensions) instead of defined contribution plans such as 401(k) plans, and women are more likely to participate in those plans. Defined benefit plans provide an income certainty that defined contribution plans lack.
Approximately 56% of those in public administration and 46% of those in educational services had defined benefit coverage, either with or without additional defined contribution coverage. On the other end of the scale, only 9% of women employed in the Accommodation and Food Services Industry (8% of employed women) have some form of defined benefit coverage, while 62% have no retirement coverage at all. Social Services (5% of employed women) is not far ahead with 15% covered by defined benefits and half having no retirement coverage at all.
What if you don't work in one of the preferred industries and aren't likely to end up in one? Make the most of what is available to you. Participate in any workplace retirement program to the extent that you can, especially when matching funds are involved. Matching funds are as close as you can get to free money.
You can improve your Social Security portion by making sure that you have at least 35 years of accumulated non-zero salary to draw upon. Try to delay drawing your Social Security benefits beyond your full retirement age so you can take advantage of percentage increases in monthly benefits, up to 8% per year of delay.
Finally, don't neglect the personal savings component. Take the advice of April Lewis-Parks, Director of Education and Public Relations at Consolidated Credit. "Start a retirement fund as soon as possible," suggests Lewis-Parks. "Even if it's $10 a week, that's something."
Surely, there's something in your budget that can be replaced by a small contribution to your retirement savings. Think of it this way – how much would the savings plus interest from one less coffee per day and one less dinner out per week be worth to you in your golden years?
Let the free Retirement Planner by MoneyTips help you calculate when you can retire without jeopardizing your lifestyle.