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Retirement has taken center stage in the United States over the past decade. The Secure Retirement Institute estimates that there are currently 55 million retirees in the United States, which make up 19% of the population. By the end of 2030 that number is estimated to grow to 70 million.
At the same time, Americans 50 years old and older are experiencing continued financial hardship and women are at the forefront. Nearly four in 10 (39%) women 50–64 say the economy is not working well for them, a recent AARP survey highlights. The same survey also revealed that an unexpected expense of $1,000 would be a major financial challenge for more than four in 10 (42%) women 50–64, compared to three in 10 (32%) men in the same age group.When it comes to retirement income, AARP also found that the majority of women surveyed who are 50-64 years old, are not confident that they will have enough money to live comfortably throughout their retirement years.
External Factors that Influence Women
There are several factors that uniquely influence women and their plans for retirement. Motherhood can have a profound impact on retirement savings and income planning later in life. Statistics from the Department of Labor show maternity leave is on average three times longer than paternity leave. This effectively removes women from the workforce for a longer period of time, risking income shortages, and the potential loss of retirement benefits. Compared to men, women also face a larger financial loss when taking leave, according to the same research.Pew Research Center also reported that “among those who took leave from work in the two years following the birth or adoption of their child, 25% of women said this had a negative impact at work, compared with 13% of men."
Another important factor when thinking about planning for the future is longevity. Women in the U.S. and around the world live longer on average than men.The Secure Retirement Institute marks longevity as a considerable risk in retirement, with women living roughly a decade longer on average, leading to an increased likelihood of outliving their spouses.This risk creates a need to plan and save for more years in retirement than ever before, including additional health care and other cost of living expenses.
For women who do have access to pensions, employer-sponsored retirement plans, and other financial tools, their time in the workforce can be greatly reduced due to caregiving responsibilities. The Mercer CFA Institute Global Pension Index also notes that women are more likely to take on part-time work due to caregiving or pursue self-employment. Self-employment generally does not offer access to retirement savings options, meaning it’s up to individuals to find other ways to secure retirement income.
While the COVID-19 pandemic has impacted almost all parts of society, women retirees have seen additional financial challenges during this timeframe. In a November 2021 AARP survey, almost 50% of women age 50-64 stated they have skipped medical care because of cost, prioritized someone else’s healthcare, or skipped or reduced any necessary prescriptions they might need to save money.
A 2020 Profile of Older Americans by the Administration on Aging also indicates that due to the impacts of the pandemic, women have felt lonelier, less socially connected, and less financially stable.
How the Gender Gap Influences Women in Retirement
While these external factors are all important contributors to some of the challenges women face when planning for lifetime income sources in retirement, the gender gap is likely the most prevalent difference in retirement outcomes between men and women.
The gender gap, in this context, refers to the financial inequities for women preparing for or already in retirement and the difference in numbers when compared to their male counterparts. In a Pew Research Center 2020 study, numbers indicated that women earned just 84% of what men earned, creating a gap of 16%. Layering the gender gap on top of external factors women face, like motherhood, Pew found that “roughly one-in-five mothers said they had been passed over for an important assignment or a promotion at work."
While socio-economic factors play a large part in perpetuating the gender gap, the biggest long-term impact could be on retirement planning. According to the Administration on Aging, older men had a higher median income overall: $36,921 compared to $21,815 for women. Finances can be directly linked to women feeling less confident about their retirement. AARP found that not making enough money to save for retirement is one of the key factors in women feeling less confident about their financial situation.
Tips to Help Close the Gap and Manage Retirement Challenges
We don't always have all the answers. That’s why working with a financial professional can help with decisions or planning. While robo-advisors offer automated investment advice and work by following a goal set by the investor, there are no human touch points and there can be complex situations that require personalized attention. When it comes to preparing for retirement, financial professionals can help with managing some of the challenges women might face and help assess any needs or strategies.
There are several questions to ask when considering what financial professional might work for you. It's good know what their specialty is and how long they have worked in financial services. Ask them how much time they spend with their clients during a year. It’s also important to know what to bring to a first meeting. Sometimes, you might need to collaborate with an attorney or someone who takes care of estate planning for your family. How a financial professional works with other professionals is good to know. Do they have someone they work with regularly or are they happy to work with whomever you are comfortable with? Once you have some of this background information covered, be sure to confirm two important industry-related questions:
- Are you commissioned-based or fee-based?
- How are you regulated?
Check with the individual financial professional or agent on how they will charge you, such hourly or flat rates. Some earn a sales commission from third parties while others charge a flat fee.
FINRA, a governing body in the financial industry, provides a broker check. The check will highlight any violations or complaints a broker or advisor might have received, assuming the individual holds a securities license. If your representative is insurance-licensed, you can check with your state insurance regulator to see if they are licensed and have any regulatory issues. Another way to find a financial professional you can trust is to ask for recommendations from family and friends.
Researchers found that lack of financial literacy has resulted in Americans feeling anxious and indicating feelings of stress when thinking about their finances. In the same survey, 65% of women responded to having those feelings compared to 54% of men.
Financial wellness has become an important part of an overall holistic approach to well-being. Some of these same researchers also offered a set of solutions that start with increasing financial knowledge, seeking out financial professionals, and taking advantage of community resources aimed at helping to cope with financial stress. The link between financial strain and overall well-being suggests that addressing financial concerns helps mental health and incorporating financial planning into a holistic wellness approach makes sense. PwC's 10th Annual Employee Financial Wellness Survey showed that putting a focus on helping people with their financial situation can lead to positive changes, including an increase in saving more money, changing spending habits, and managing resources more carefully.
Planning for Retirement Income: Why Annuities Can Help Ease Retirement Income Worries for Women
Annuities come in different varieties. All offer tax deferral of your money and the potential for a guaranteed stream of lifetime income in exchange for a lump sum or series of premium payments. The two most common are fixed and variable. Variable annuities can grow based on underlying investments in the market, and their value will fluctuate, so you could lose money. There is often no guaranteed return unless you purchase an additional feature that provides this. Fixed annuities can earn interest in a number of ways, depending on the type of fixed annuity you purchase, and guarantee that your principal will be protected from market loss. Annuities involve fees and charges, including surrender penalties in the early years of the contract, but most permit you to withdraw a portion of your funds every year without penalty. Withdrawals are subject to income taxes, and potentially a 10% IRS penalty if taken before age 59-1/2.
A solid financial plan can help ease retirement income worries and provide solutions for women thinking about retirement. The 2021 Women’s Retirement Literacy Report from The American College of Financial Services indicated that while women are more concerned than men of running out of money in retirement, they also believe in good advice from financial professionals. Numbers also show guaranteed income in retirement is a major concern and that the majority of women believe in the value of guaranteed income sources.
The American Council of Life Insurers (ACLI) points to some of the unique advantages of annuities as key factors to why women should consider them:
- Annuities are tax-deferred, meaning you don’t pay taxes until payout.
- Some annuities adjust with the market and can protect principal and interest earned from market volatility.
- Annuities are inherently flexible as to how much money you can put in and when payouts can take place.
The Secure Retirement Institute also reported that annuity ownership is linked to retirees’ confidence in their retirement. Of those surveyed, 73 percent of retirees who own an annuity say that they believe they can live the lifestyle they desire.
Despite challenges, there are options for women to become more knowledgeable, confident, and active in their financial decisions. Increased awareness of these issues continues to shine a light on the impacts of the gender gap and solutions to a more equitable future for women.
This content is for informational purposes only, and is not a recommendation to buy, sell, hold or rollover any asset. It does not take into account the specific financial circumstances, investment objectives, risk tolerance, or need of any specific person. In providing this information American Equity Investment Life Insurance Company is not acting as your fiduciary as defined by the Department of Labor. American Equity does not offer legal, investment or tax advice or make recommendations regarding insurance or investment products. Please consult a qualified professional.
Annuities are long term vehicles designed for retirement income and are not suitable for everyone. They involve restrictions and charges, including possible surrender penalties for early withdrawals. Annuity distributions are subject to ordinary income taxes, and if taken before age 59-1/2 may incur an additional 10% federal penalty. Guarantees are based on the financial strength and claims paying ability of American Equity and are not guaranteed by any bank or insured by the FDIC. Availability may vary by state. Possible interest credits for money allocated to an index-linked crediting strategy are based upon performance of the specific index; however, fixed index annuities are not an investment, but an insurance product, and do not directly invest in the stock market or the index itself.