It’s a story I’ve heard so many times.
The story about how she DID start saving for retirement, but then came the children. There were school supplies and extracurricular activities to pay for. The kids came first. Then there was college to fund and weddings to plan.
After the kids finally graduated and got married, she started getting back on track when out of nowhere -wham! Her parents began to decline. Mom had to move in. She spent her money and her time caregiving for her loved one.
Now she is 65 years old, preparing to enter Medicare and is appalled to find out that her healthcare in retirement won’t be free. Nor will her long-term care expenses. While she may have Medicare, even that doesn’t cover everything, leaving her with 20% to pay out of her own pocket along with deductibles and copays.
She didn’t know, she says. There’s not enough money, she says.
Her life got interrupted and blew her financial plan right out of the water.
This all too common scenario has played out here in my office hundreds of times over the years, and I’ve watched countless women work well past 65 to try to make up for it.
It’s time we had a conversation as a country about this and brought awareness to the fact that our lives as women are more likely to incur interruptions that throw us off our financial game plan.
Here’s why we need to save more and what action steps we can take ahead of time to plan for the all too common interruptions.
Why Women Need to Save More
Despite advances in gender equality, women today still earn less than men. U.S. News reported full-time female employees earned only 79% of the income that men earned. Those lower wages mean lower Social Security earnings when we retire.
And this is just the beginning of the problem when it comes to our future Social Security income.
You see, Social Security calculates your retirement income benefits based on the best of 35 years of your work experience. This is terrific if you were consistently in the workforce, but for reasons we’ve discussed above, women can often have gaps in their earnings.
In the years that we take off for maternity, child-rearing, and family obligations like caregiving, there is a big old goose egg being recorded by Social Security. Those zeroes get averaged into our 35 years of earnings and lower our future monthly Social Security income benefits.
Social Security reported that in 2016, the annual SS income for women aged 65 or older was $13,891 versus $17,663 for men. This is scary when you consider that 46% of elderly unmarried women rely on Social Security for 90% or more of their total income.
Consider that during those years you weren’t working, you were probably not contributing to any 401K or IRAs either, which is certainly one of the reasons why so many women are dependent on Social Security income in their elder years.
Yet we really need to have more money saved for retirement than men because our spending in one area – healthcare – is considerably higher throughout our lifetimes then men.
Our HealthCare Just Costs More
Prior to the passage of the Affordable Care Act, which prohibited premiums from being affected by gender, health insurance companies routinely charged higher premiums for women than for men.
This isn’t because health insurance companies are down on women. It’s because women have profoundly higher healthcare expenses over their lifetimes.
Registerednursing.org reported that health spending for women age 44 to 64 is 24% higher than for men and even after we reach Medicare age, we can still expect to spend 8% more for our healthcare. The National Institutes of Health also published a study showing that women’s lifetime expenditures for healthcare are nearly $100,000 more than for men.
There are several reasons for this. Our reproductive health, involving birth control, pregnancy, childbirth and sometimes treatments for infertility – require us to seek medical help more often. Maternity and childbirth are just expensive.
Women also tend to take advantage of more preventive care services than men, even if some of these aren’t covered by insurance. A Kaiser study found that almost one in four women with private insurance paid out of pocket for a Pap test. When we have discussions with our doctors, and if tests or labs are recommended, we are likely to proceed with them even at our expense.
We Live Longer
We ladies also have longer life expectancies. In 2019, women have a life expectancy of 82.4 years compared to men at 77.9 years.
While the difference is only a few years, those last few years can be some of the most expensive ones. Studies have shown that healthcare costs are highest in our final years of life. This means that the older we get, the more we can expect to spend on our healthcare.
If we outlive our husbands, we also live on less when we experience the loss of their Social Security income, creating a kind of perfect storm for running out of money in retirement.
Long Term Care Is Expensive
There’s another factor to living longer, and that’s the potential need for long-term care. Because we often live beyond our mates, there tend to be more women who incur the costs of long-term care, and this kind of care is extremely expensive.
Morningstar reported that an estimated 58% of women aged 65 and older will need long-term care during their lifetimes and that the average long-term care stays for women lasts 2.5 years.
With a median annual cost of $45,000 for an assisted living facility and $85,775 for a semi-private room in a nursing home, there is no question that we need to plan more aggressively for the chance that we may need to pay out of pocket for this care one day.
So, considering that our Social Security earnings will be lower, but our healthcare expenses will be higher, what can women in their 20’s – 60s do now to get ahead of the curve? Here are some tips for planning ahead.
The workforce has changed considerably over the last few decades and there are more jobs than ever before that do not include any physical labor. Many individuals work well past 65 these days thanks to the internet and the types of office jobs that it has created.
While you can sign up for Social Security as early as 62, you can reduce your income benefits to around 70% of what you would get at your full retirement age. The longer you wait to file for retirement benefits, the larger that monthly Social Security check will be. If you enjoy your job, consider retiring at 67 or even 70. If you don’t enjoy your job, could you consider an encore career – something you do for a few years that you really enjoy. It doesn’t have to earn you a fortune – just enough that you wait a few years while those Social Security income benefits mature.
Get a Side Hustle
Another amazing societal change brought on by the internet age is the availability of side-income or part-time income. Women everywhere are finding opportunities to earn extra money. You can teach English as a second language online. You can tutor students after school.
You can start a pet-sitting or dog-walking business right in your own neighborhood and post your services online. There are so many opportunities. Sock this extra cash away for your retirement, preferably into a health savings account.
Contribute to an HSA
Most large employers these days offer several options for your employer group health insurance coverage. Often one of these options will be a high-deductible health insurance plan that qualifies you to open a health savings account.
You can contribute money into this account during your working years and write the contributions off on your taxes. In 2019, individuals can contribute up to $3500 and joint filers can contribute up to $7000. People age 55 or older can also contribute an extra $1000 per year as a catch-up contribution.
You can use the funds in the HSA to pay for qualified medical expenses including dental, vision, and hearing expenses. The money you contribute grows over time, compounding interest and is not taxed when it is withdrawn either if it used for medical expenses.
The greatest part about a health savings account is that it lets you save up money for your future medical expenses in retirement. You’ll be able to use it to pay for your Medicare premiums and long-term care expenses. Check with your employer to see if you are eligible to enroll in a health plan that will allow you to open an HSA soon.
Start Saving Earlier
You’ve probably heard it before, but the earlier you begin your retirement savings, the better. The power of compounding interest is phenomenal if you can begin saving in your 20’s and 30’s instead of waiting until your 50’s. Set up an automated transfer from your savings into an IRA or ask your employer if you can enroll in whatever retirement programs they offer so that you can set up an automatic payroll deduction.
Put away as little as $50 a month to start and increase that with time whenever you receive a promotion or pay increase. You’ll be surprised how much money will be in there just a few years down the road.
Master Your Budget
We get it. Budgets are not fun or sexy, but they do help you to get an accurate picture of your spending. If you think you don’t have even $50 to put away monthly for retirement, track your spending for 3 months and see where your income is being spent. You’ll likely find that you spend more on things like entertainment and Starbucks that you realize.
Put together a realistic budget with the help of a financial planner and try to live within your means. Doing it now while you are still young and healthy enough to earn side income will mean a world of difference to you later when you begin taking your Social Security income benefits and retirement distributions.
You’ll thank yourself later.