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Mark Miller: Remaking Retirement

Five Ways for Women to Achieve Retirement Security

Women face distinct retirement-planning challenges, including higher longevity risk, less access to workplace retirement plans, and continued wage discrepancies.

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Mary Tooles should be on track to a secure retirement. She has a college degree and more than 10 years of experience working in operations management for major corporations, including  FedEx (FDX),  OfficeMax (OMX), and  Target (TGT). On paper, she's an ideal candidate to be socking away savings in workplace retirement accounts.

But Tooles left her position two years ago as a store manager at Target, where irregular, long hours competed with her growing responsibilities at home. A divorced mother of two who receives almost no child support, she also cares for her 88-year-old father, who lives with her and has mild dementia. She found a new position with more regular hours, but it pays one third less than her old job.

Tooles also is saddled with her Orlando, Fla., home, which she purchased with a 20% down payment before the housing-market crash. And, she's putting her two sons through college.

At age 50, her retirement savings are meager, and "there's no retirement plan in sight" outside of Social Security and a small amount of pension income earned at her various jobs. "Retirement is just a big unknown," she says.

Adds Wayne Blanchard, an Orlando-based financial planner who advises Tooles: "It's one thing to be a single parent, and another to be a single parent with caregiver duties on top of it. Her challenges have made it very difficult to save for retirement."

Distinct Challenges
Numerous studies show that women have much more trouble than men building for a secure retirement.

Caregiving, whether for aging parents or children, often cuts into earnings and destabilizes retirement plans, and two thirds of caregivers of adults over age 50 are women, according to the National Alliance for Caregiving.

Additionally, many women still earn lower wages than men in many occupations. In 2010, women across all occupations earned 81% of what men earned, according to the U.S. Bureau of Labor Statistics. In retirement, lower income translates to smaller Social Security benefits or defined benefit pension payments, along with smaller balances in 401(k) accounts, IRAs, and other retirement-savings vehicles.

Women are less likely than men even to have access to a workplace retirement savings plan. An annual survey on retirement by the Transamerica Center for Retirement Studies shows that 70% of women currently have access to a workplace retirement plan, compared with 79% of men.

"The gap between women and men is closing slowly, but it's a legacy from the past," says Catherine Collinson, the center's president. "It persists because women are more than twice as likely as men to work part-time and, therefore, are much less likely to be offered benefits."

(Collinson adds that among women working full-time, those who are offered a 401(k) plan have increased from 73% in 2007 to catch up with men at 80% in 2011.)

A sizable gender gap in financial literacy is another hurdle women face in meeting retirement goals. For example, research by The Wharton School's Boettner Center for Pensions and Retirement Research documents that women are less likely than men to understand the stock and bond markets and risk diversification. The center's research also shows that low financial literacy leads women to under-invest in stocks and tax-favored assets, which leads to subpar long-term returns.

The Transamerica study contains similar findings; for example, 34% of women told Transamerica researchers that they understand Social Security benefits "a great deal" or "quite a bit," compared with 45% of men.

On the flip side of the coin, women face greater longevity risk in retirement, which means they need to stretch their resources across more years. A woman who reaches the age of 65 can expect to live an average of 19 more years, nearly three years longer than a man, according to the U.S. Administration on Aging

Women do understand the special challenges they face in securing their retirement. A recent study by the MetLife Mature Market Institute and the Scripps Gerontology Center at Miami University found that women know they'll outlive men and that they tend to worry more about retirement--especially the affordability of health care, long-term-care costs, and the adequacy of their income and assets.

For example, 71% of women (versus 62% of men) told the researchers that they were "very or somewhat concerned" about being able to afford health care in their retirement years; 71% also are worried about meeting long-term-care needs and nearly twice as likely as men to be very concerned (27% versus 15%).

At the same time, the MetLife study found that women aren't taking charge of their own future needs. Only 34% said they are most responsible for financial and retirement planning in their households, compared with 61% of men.

"It isn't that women aren't capable of handling retirement planning," says Sandra Timmerman, MMI's director. "But somehow there is a lack of confidence or ability to take the step forward and do the math. Women are more worried and want to have a good financial plan, and yet they haven't taken action."

Taking Control
What can women do to improve their odds of achieving retirement security? Experts serve up these suggestions:

Spouses: Communicate and plan. The need to act isn't limited to women; experts caution that married couples need to focus more on joint planning. "When men are doing retirement planning with their spouses, they often aren't thinking about the long life of women, and the likelihood that the woman will outlive him," Timmerman says. "It's important to really make all the provisions that you should." At the top of Timmerman's list: planning for the expense of health care and long-term care in retirement.

Have a smart Social Security plan. Social Security is a critical bulwark against longevity risk for women, since it provides lifetime income--and older single women fall into poverty at a higher rate than most demographic groups in the country. The program is the sole source of income for 42% of single women over age 62.

The age at which you file for benefits is the most important decision. Although there's no one-size-fits-all answer, many women will benefit by delaying filing for Social Security benefits until at least the normal retirement age, or NRA, which currently is 66. Annual benefits are reduced 8% for every year that you file before this age, and increased by the same amount for every year you wait past NRA, up to age 70. A delayed filing offers a powerful way to boost current income in retirement.

For couples, the spouse with higher Social Security benefits should delay filing as long as possible. The spouse with lower benefits (often the woman) is entitled to receive the greater of his/her own benefit or half of their spouse's benefit. And surviving spouses can switch over to a deceased spouse's full benefit level for life.

Christine Fahlund, a senior financial planner at T. Rowe Price, says, "If the husband predeceases the wife before the widow attains her full retirement age, depending on that widow's financial situation and current age, it could be beneficial for her to wait to claim her husband's Social Security benefit until she attains [NRA] so that she receives the maximum widow's benefit for which she is eligible." Fahlund adds that if she claims at any earlier age, starting at age 60, her widow's benefit will be reduced for the rest of her life.

You first, kids second. Research shows that many parents rob their own retirement plans in order to provide financial assistance to children. That can leave parents in the humiliating position of exhausting their assets late in life and relying on children for assistance.

Fahlund notes, "Too often, a mother will get a pile of money and say to herself, 'What can I do with this to help my kids?' But it's an obligation to yourself and your children for you to be financially solvent at all times. You and your spouse need to plan well for retirement so that at the end of the day, you still have money and haven't given it away to the children prematurely."

Plan for health-care expenses. Women have significantly higher lifetime health-care expenditures than men, mainly because of their longevity. Long-term-care costs also fall disproportionately on women because they are more likely to provide care for men and outlive them. "Couples ought to be speaking with their adult kids at an early age about how to finance long-term care, probably in their mid- to late 50s," Fahlund says. (For more on long-term-care strategies, see my discussion with Morningstar's Christine Benz here and here).

Consider hiring a financial planner. Hiring an advisor adds a partner to your family who will still be there when one spouse dies. That can be especially valuable if the deceased spouse handled most of the financial-planning chores. The surviving spouse has an established relationship with a trusted advisor who has a thorough understanding of the family's financial situation. You want to hire someone with experience but young enough to be around and still practicing when you reach an advanced age.

Mark Miller is a retirement columnist and author of The Hard Times Guide to Retirement Security: Practical Strategies for Money, Work and Living. The views expressed in this article do not necessarily reflect the views of Morningstar.com.

Mark Miller does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.