Meeting the challenge to develop adequate retirement income streams
by Lili A. Vasileff, CFP, CDFAMs. Vasileff is founder & president of Divorce and Money Matters, LLC. She is a nationally recognized fee only financial planner and independent investment advisor. Connect with her by e-mail at [email protected]
Special Feature: The Ascension of Women
Women have unique challenges facing retirement and handle retirement preparation differently in general than men. Women on average live longer than men, experience a longer period of time as single adults, have lower annual retirement incomes, face greater health care costs, and carry greater care giving responsibilities.
Despite many gains in the workforce and greater consumer purchasing power, women generally have less confidence than men when preparing for retirement. Lack of confidence is coupled with lack of adequate planning, which leads to a significant gap between retirement income security needs and their response to them. Marketing to women in transition has become popular as a targeted demographic who are vulnerable to financial risk. This is in large part due to the traditional employment histories of female Baby Boomers as well as the difference between genders concerning money management.
Time and time again, surveys reveal that women and men use very different strategies to find a balance between work and their personal lives.
Women continue to be the primary users of formal reduced work arrangements, which often carry high career penalties. According to the Bureau of Labor Statistics, Current Population Survey, Annual Averages, 2003:
- “Women outnumber men by 2 to 1 in part time jobs; many lack employer-sponsored benefits and retirement plans.
- Women are out of the work force more than men due to pregnancy, childcare and care giving for elderly parents. On average, women spend ten years away from the workforce versus one year for men.
- For every year a woman stays out of the workforce, it will take her five years to recover lost income, pension coverage and career advancement. Many women are homemakers who have no entitlements whatsoever.”
Trying to Catch Up
Adding to lower overall earnings is a diminished capacity to catch up in pay. Pay parity has not budged much from early 1970s to now. “Women are almost half of the workforce. They are the equal, if not main, breadwinner in four out of ten families. They receive more college and graduate degrees than men. Yet, on average, women continue to earn considerably less than men. In 2010, female full-time workers made only 77 cents for every dollar earned by men, a gender wage gap of 23 percent. Women, on average, earn less than men in virtually every single occupation for which there is sufficient earnings data for both men and women to calculate an earnings ratio”, the study Workforce Investment System Reinforces Occupational Gender Segregation and the Gender Wage Gap by Institute for Women’s Policy Research (June 2013).
Shorter work tenure means lower overall earnings, smaller pensions, and reduced Social Security benefits. Because the pension benefit picture is bleak for many women, the majority of older widows living alone end up relying on Social Security benefits as their primary source of income.
Divorce and single parenthood also add to significant declines in the standard of living for custodial mothers versus men immediately in the year following divorce. Dividing one household into two households is a challenge that demands compromise and contingency planning for unanticipated financial needs. Yet it is often impossible to establish any safety net for custodial mothers who are unemployed and incur the most minor of financial emergencies due to lack of savings, zero income, and no access to credit. Defaults in payment of expenses, child support and alimony, as well as, declines in asset values are rampant in a poor economy.
Women can be caught on the other side of the fence in a divorce. Women paying alimony to their spouses increasingly are becoming a real factor in divorce. When a spouse becomes unemployed, disabled, laid off, or forced into early retirement, women who held supplemental jobs (even part time) now find themselves as the only wage earner in the family. Often divorce results from unintended consequences of a wife becoming the breadwinner while still maintaining the primary homemaker role. Nearly one in three married women makes more money than their spouses do, which rarely is greater than $75,000, according the Bureau of Labor Statistics.
Finally, women today tend to be more involved with care giving, the so called sandwich generation, caring for both young adult children and elderly parents. In addition to a strain on one’s capacity to work full time, care giving is expensive, time consuming and labor intensive. It is not unusual for couples to have to choose between saving for college for their children, saving for their own retirement, or paying for nursing care / home care for an elderly parent. In tough economic times, these choices are severely limited and imperil one’s future financial security.
Approaching retirement years calls for proactive planning by women in order to survive financially. Women quite simply cannot afford to plan for “if and when”; they must assume responsibility for their own well being now. A call to action is needed.
If you are still working, women should take these steps to maximize any financial benefits that benefit them in future years:
- Coordinate retirement contributions with your spouse and ensure beneficiary designations provide for survivor benefits
- Evaluate and plan strategically how and when to maximize Social Security benefits between you and your spouse
- Be sure to stay in a job long enough to qualify for retirement benefits and social security benefits based on your total quarters of earnings
- Be careful to track down all prior employers’ retirement benefits and rollover over any accounts. Find out if you might be due any pensions and be sure to inform them of your whereabouts when you are reach retirement age
- Determine if any employer benefits are portable if you leave your company
- Negotiate for any severance benefits that cover health care costs
And, even if you are not working, women should:
- Prioritize your future financial well being above your young adult children’s (they are younger and have more opportunity to establish themselves)
- Understand the rules for eligibility for Social Security benefits if filed on your ex-spouse’s record (stay married for at least 10 years)
- If divorced:
- Track all tasks required in a divorce agreement to be sure they are executed and completed within a reasonable time frame. Enforcing compliance is costly in legal fees and puts assets at risk if not under your control
- Create a timeline for any post divorce tasks that are part of the agreement, such as to pay off debts; divide qualified pension accounts via a qualified Domestic relations Order; transfer titles to assets; enroll in COBRA; etc. Ensure the intent of the agreement is executed and that your share of total wealth is now yours to manage
- Be sure to ask for and exchange financial information if ordered in your divorce agreement – especially, if your support is based on a percentage of income, your ex-spouse’s income is variable, or infrequent. You may be able to modify support received if your ex-spouse’s income has risen
- Keep a schedule for the vesting of your (ex-) spouse’s deferred compensation benefits you are entitled to receive when they become exercisable. Do not forfeit these assets simply because they are difficult to value, intangible, or sustain a forced connection into the future with your ex-spouse
- Set aside savings as best as possible from support paid to you or through your budgeting to provide for your own future savings.
- Squeeze every dollar from major financial purchases – negotiate best terms and discounts
- Evaluate how to make your assets throw off greater cash flow:
- evaluate reverse mortgages that yield you cash flow
- borrow against cash value in whole life insurance policies which is nontaxable
- deploy your assets such as renting out properties
- Understand how to invest and not to be risk averse to investing for growth and appreciation; understand the impact of inflation and taxes on investments
- Consider that you will have to work longer in later years
“From 2008 to 2018, the women’s civilian labor force is projected to increase by 9.0 percent, or 6,462,000. The number of women aged 65 to 74 in the civilian labor force is projected to increase more than the number of women in any other age group—increasing by 89.8 percent, or 2,030,000. Although projected to be the smallest in number among all age groups, the number of women in the civilian labor force aged 75 years and older is projected to have the second highest increase—61.4 percent, or 336,000.”
In order to develop and grow adequate streams of income during retirement years, women need to plan for living longer than their mothers, being single, and stretching every dollar. There are many diverse opportunities all throughout one’s life to maximize cash flow, minimize taxes, enhance savings, and manage spending. Strategies for cautious fiscal management evolve based on need, preference, and risk tolerance. Women should be prepared to learn as much as possible to assume responsibility for their financial future to stay prepared for both financial opportunities as well as financial disruptions.
1. Bureau of Labor Statistics, March 2011 Spotlight on Statistics, “Women at Work” .