Why women need more money in retirement

It’s a well-established fact that women live longer than men, on average, and so they must plan for more years in retirement. But that’s just the beginning of their retirement challenges.

Women often earn less than men and are more likely to take time out of the workforce. And given their longer life spans, they have higher medical and long-term care costs late in life. In short, they need to stretch their money longer, but they have less of it.

Our experts weigh in on the causes behind these challenges and how women can navigate them.

Careers full of twists and turns

Women are making significant financial strides—earning college degrees, occupying corner offices, and launching businesses. In all, women are in control of more than half the wealth in the U.S., about $14 trillion, both due to these advances and inheritances. Even so, “the wage gap is alive and well,” noted Catherine Collinson, president of the Transamerica Center for Retirement Studies.

Women still only earn 80 cents for every dollar a man makes. “Over a saving and investing horizon, the gender pay gap turns out to be a big number, a very big number,” Collinson said.

It’s simple math: A man who makes $50,000 a year is able to squirrel away more for retirement than a woman who earns 80% of that. Over 40 years, that translates to about a $123,000 retirement savings disparity, assuming an 8% savings rate, 2% yearly salary increases, and a 6% rate of return, according to Collinson’s center.

But there’s more to it than that. Women often put their careers on hold while they raise their families. While 43% of mothers are either not working or working only part time, just 6% of fathers are doing the same, according to the Pew Research Center.

And it’s not just child care that falls to women. The Bureau of Labor Statistics reports that they also make up the majority of unpaid eldercare providers for parents and other aging family members.

Career disruptions mean fewer opportunities for advancement, which affects lifetime earnings. Without jobs—or full-time employment—women have fewer chances to contribute to 401(k)s, Social Security, and pensions.

Investing and risk appetite

The good news is that when women have access to retirement savings programs, they take advantage of them. According to research from the Vanguard Group, women participate in 401(k)s in greater numbers and at higher rates than men. However, due to their lower wages and breaks from work, their balances are lower.

They could lean more on the stock market to help close that savings gap. But women are often taking the opposite approach. Fearing market losses, women tend to have a higher proportion of their assets in low-volatility investments like cash or bonds.

“That’s a positive for wealth preservation, but a negative for growth generation,” said Peri Ann Aptaker, Esq., CPA/PFS, CEO and director of wealth management at KLR Wealth Management in Providence, R.I.

Women may need to get more comfortable with some investment risk, said Lisa Featherngill, CPA/PFS, managing director of wealth planning for Wells Fargo’s Abbot Downing unit. “There’s a spectrum between capital preservation and risky investments,” Featherngill said. “Based on the rate of return you need, you might have to go up the spectrum.”

The health care penalty

With longer lives, women also have more years of health care to pay for. According to HealthView Services, a company that publishes health care cost research for financial advisers, a healthy 55-year old woman can expect to spend $79,000 more on health care in retirement than a man of the same age. And women are much more likely to need long-term care, too.

“Statistically, men tend to go first, and it’s their wives who had to take care of them,” Aptaker said.

It’s no coincidence that over 70% of the residents in nursing homes are women.

To help cover the cost of care, Aptaker recommends hybrid life insurance policies with a long-term care rider as a possible solution. Some of the death benefit can be used while the insured is still alive if there’s a need for long-term care. This way, there’s money for both spouses.

Susan Tillery, CPA/PFS, president and CEO of Paraklete Financial in Atlanta, on the other hand, has seen clients back away from long-term care insurance because of the cost. These clients must either earmark savings for long-term care or have a backup plan. “The alternative is talking with family members and asking them to care for you if you are not able to take care of yourself,” she said.

Creative solutions needed

Despite the challenges, there’s a lot women can do to shore up their retirement prospects. The most important, said Featherngill, is saving aggressively, especially in the beginning. “You can save a whole lot more for retirement when you start early,” she said.

And the whole notion of retirement may need an update. Tillery pointed to one of her clients, a 65-year-old public relations executive who wanted to retire and travel. Unfortunately, she hadn’t saved enough. Instead of retiring, she scaled back her work schedule to part time and now plans to work an additional five years. “Now when she travels for work, she and her husband combine it with personal travel,” Tillery said. “That’s how they’re able to travel.”

Of course, illness and layoffs can derail those plans. And some older workers, even if they want to work, may not be able to find a job. “You have to be super proactive about keeping your job skills up-to-date so you’re still marketable,” Collinson said.

Finally, women should find ways to maximize Social Security. For the average retiree, Social Security replaces 40% of pre-retirement income, but for women it makes up a higher portion. While retirees are eligible to receive benefits at 62, benefits are reduced if they’re tapped before full retirement (currently 66 or 67 years old, depending on the year you were born). Between full retirement age and 70, there’s an 8% increase for each year a worker delays drawing benefits.

“There are a few exceptions, but generally speaking, it’s advantageous to wait as long as possible,” Collinson added.

Even as women achieve greater financial equality, they still have unique retirement planning challenges. CPAs who give careful consideration to the many issues that women are juggling can lead them to a more secure retirement.

Ilana Polyak is a freelance writer based in Northampton, Mass. To comment on this article, contact Chris Baysden, senior manager of newsletters at the AICPA.