The Informed Investor

How Retirement Planning Is Different For Women

February 8, 2022

It’s not surprising that when it comes to saving for retirement, women aren’t saving nearly enough to cover their future needs. You don’t have to go far to understand why. Women live longer than men. Women, historically, have made less money than men. And women — whether they choose to or not — often have to prioritize their lives differently than men. Fortunately, with the right financial planning, many women can start working on bridging this retirement savings gap.

Why Many Women Are Less Prepared For Retirement

There are many factors that impact a person’s retirement planning, including how much they understand the financial planning best practices for their situation. But there are factors that impact a woman’s retirement outlook much more than most men. These include:

  • A persistent wage gap
  • A difference in priorities and societal expectations
  • Interruptions in earnings history if time is taken off to raise children or care for elderly parents
  • A difference in average lifespan

Many women continue to make less money than men for comparable work

One of the primary reasons women save less for retirement than men is, quite simply, the fact that they often make less money than their male colleagues.

In 2020, women earned 84% of what men earned, which means the average woman would have had to work an extra 42 days in 2020 to level the earnings playing field with her male counterpart. Of course, the fact that there is a significant wage gap between men and women is nothing new. The current gap has remained fairly stable for the last 15 years, adversely impacting the average woman’s retirement account.

Women who earn less money and/or may also be the sole support of their family have difficulty saving adequately for retirement. Lower lifetime earnings reduce the amount of wealth women can accumulate from employer-sponsored retirement plans and decrease their contributions to — and eventual benefits from — Social Security or other pension plans. Plus, less earnings may result in limitations to saving in individual retirement or other investment accounts.

Women generally have different priorities than men

When it comes to determining priorities, retirement planning may not be at the top of many women’s lists. Women tend to address more pressing matters first — such as covering basic living expenses, children’s education and myriad needs, acting as caregivers, and paying down debt — before even thinking about saving money for retirement.

And the more career interruptions women experience — often to raise children or care for elderly parents — the more their Social Security benefits are negatively impacted. For instance, having a first child reduces a woman’s Social Security benefits (through reduced earnings) by an average of 16 percent, and each additional child she has increases this gap by 2 percent. Women who leave work to care for an elderly family member lose an average of $131,000 in lifetime Social Security benefits.

Women live longer than men

Women in North America live an average of five years longer than men. This means that, if married to a man, a woman will likely outlive her husband and, upon his death, lose the benefit of two Social Security incomes. A longer life means greater healthcare expenses and long-term care needs. Many women may find themselves in dire straits when it comes to retirement, unless they take prudent steps to make retirement planning a higher priority.

What Can Women Do to Plan for a Better Retirement?

The idea of accumulating enough savings and investments to ensure a comfortable retirement can be overwhelming. If you are a woman who finds herself behind the retirement investment curve — or you have a wife, mother, sister, or friend you are concerned about — the single best thing you can recommend is finding a trustworthy and qualified financial advisor to offer guidance.

At ICC, our advisors understand the challenges numerous women face when it comes to retirement. We never promote cookie-cutter approaches to financial planning because we know that one size does not fit all, particularly when it comes to covering the gender gap in retirement savings. Furthermore, our recommendations are made with your best interests at heart because we adhere to the fiduciary standard, which means we eliminate or disclose all potential conflicts of interest so we can focus on your financial well-being.

While there is no substitute for sitting down with an ICC advisor to map out a personalized retirement plan, the following information provides avenues to retirement planning that are often beneficial for anyone who would like to increase their retirement portfolio sooner than later.

Maximize savings with catch-up contributions to your retirement accounts

As long as you are over the age of 50, you can make what are known as “catch-up” contributions to your 401(k) and IRA. This means that for a 401(k), in 2022 you may be able to contribute as much as $26,000, instead of $19,500. If you have an IRA, you can contribute as much as $7,000, rather than the standard $6,000.

Consider converting your traditional IRA to a Roth IRA

With a traditional IRA, you defer taxes until withdrawal. With a Roth IRA, you have to pay taxes now, but your withdrawals will be tax free. Whether or not this works for you depends on your tax burden now compared to what you anticipate it being later. Our ICC advisors and tax specialists can work with you and your tax professional to decide if this makes sense, but it is an important consideration.

Invest wisely

If you have been able to put money away in savings, consider making those funds work for you to help fund your retirement. Your ICC financial advisor can assist with creating a personalized investment strategy to help increase your wealth while carefully managing risk.

Learn More About Retirement Planning With ICC

The financial advisors at ICC are continually researching current market conditions and translating that knowledge into retirement planning strategies to benefit clients like you. If you have $1,000,000 or more in investable assets contact us today to learn more about our retirement planning services. 702-871-8510.

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