Women and Retirement: 5 Challenges Women Need to Plan for Financially

When it comes to retirement, the adage to save early and save often applies to everyone. But that doesn’t mean the ins and outs of retirement will look the same for all.  

Women in particular face some specific challenges that can leave them at a disadvantage to men in retirement. In fact, women’s average retirement income is about 80 percent of what men receive, according to the National Institute on Retirement Security. The good news is that knowing the challenges in advance allows you to create a financial plan that helps solve for them.  

Here are five factors that women need to consider when planning for retirement.  

1. Women live longer 

Women who have reached age 65, a typical retirement age, are expected to live another 20 years, while 65-year-old men are expected to live another 17. That means women need to save more over their lifetime to ensure they don’t outlive their retirement savings.  

The current average annual spending among households led by someone 65 or older is a little north of $47,000, according to the Bureau of Labor Statistics. Of course, how much you spend each year in retirement will depend on your personal expenses and lifestyle. But the bottom line is that when planning for retirement, you may need to live off your savings longer than men will. Plus, you’ll have to think about strategies for maximizing your retirement income — including a plan for when to start taking Social Security.  

Delaying your Social Security payments is one way to help increase your retirement income, says Jennifer Raess, Advice Integration Lead at Northwestern Mutual. You’re eligible to claim your benefits as early as 62, but claiming Social Security prior to your full retirement age could reduce your benefits by as much as 30 percent. (For those born in 1960 or later, the full retirement age is 67.) 

But Social Security is just one piece of the puzzle. Knowing exactly how much you’ll need to save, what retirement income options are available to you, and how to draw from your income sources in a tax-efficient way are all important parts of a retirement plan that’s worth talking through with a financial advisor.  

2. Women are more likely to have gaps in their retirement-saving years 

Exacerbating the wage gap is the fact that women are still largely in charge of caregiving, and thus more likely to experience interruptions in their careers to raise kids or care for other family members. In fact, one in three moms in a 2021 McKinsey & Company study considered scaling back at work or quitting their jobs entirely during the pandemic, largely due to childcare responsibilities.  

The problem is that time out of the workforce also means putting a pin in your retirement contributions — something that can have a negative effect on your long-term savings. When you’re ready to get back to work, you may need to increase your contributions to make up for lost time, Raess says. If you’re married, a spousal IRA may allow you and your spouse to keep up on retirement contributions while you take time off.  

In either case, if you know you’ll stop earning income for a time because of caregiving duties, talk to an advisor to understand what strategies are available to help you make up for any retirement shortfalls. 

3. Women have higher healthcare costs 

Health care expenses tend to go up for everyone in retirement, regardless of gender. But because of their longer lifespans, women can expect to pay $200,000 more than men in health insurance premiums alone, according to an estimate by HealthView Services.  

On top of that, living longer means a plan for long-term care becomes more important. “Maybe you were able to care for your spouse, but now your health may be declining, and you may have greater health care costs for things like long-term care needs,” Raess says. According to Northwestern Mutual’s 2020 cost of care study, full-time daily help currently averages $75,000 a year, while a private room in a nursing home averages $113,000. 

This can feel like a lot of what-ifs to plan for, but accounting for these kinds of costs while you’re still young and healthy gives you time to save and strategize for them. For instance, Raess says opening a health savings account (HSA) can be a great savings option for women with a high-deductible health plan. An HSA allows you to sock away pre-tax dollars that can be used to cover qualified medical expenses like prescription drugs, medical deductibles and more, although you’ll pay taxes and an IRS penalty if you use the money for nonqualified costs.  

The kicker is that once you turn 65, you can use these funds for whatever you like. You’ll still have to pay taxes on distributions that aren’t for qualified healthcare expenses, but you won’t have to pay penalties. 

“HSAs can be helpful because they can double as retirement income,” Raess says. “When you get into retirement, it almost functions like a Roth IRA, assuming you’re using it for your health care costs.” 

4. A ‘gray divorce’ impacts women more  

The divorce rate among Americans who are 50 and over has roughly doubled since the 1990s, according to a Pew Research Center analysis. And research has shown that getting divorced later in life is financially harder on women than men: a 2020 Bowling Green State University study estimates that women see a 45 percent decrease in their standard of living following a gray divorce, versus 21 percent for men.  

The lower lifetime earnings of women compared with men and taking time out of the workforce to provide childcare are some of the reasons behind the gap. Wives who have largely left financial decision-making to their husbands can be especially vulnerable. 

If you’re going through a divorce, Raess recommends connecting with a financial advisor to help recalibrate your retirement plans and figure out what retirement income options you have. For instance, if you were married for at least 10 years and your ex-spouse is eligible to begin collecting Social Security, you might be able to collect benefits on their record. You could be entitled to an amount that’s equal to half of their benefit if you meet other criteria and haven’t remarried. 

5. Women may be impacted by the lack of estate planning 

Because women are likely to outlive their husbands, proper estate planning is key to ensuring their finances will be protected following the death of a spouse.  

A full estate plan includes not only creating a will or trust, but also includes naming powers of attorney and updating beneficiaries on life insurance policies, retirement accounts and other financial accounts. Keeping this information up to date is key because beneficiaries named in a policy override those named in a will. For instance, if a husband names an ex-spouse as a beneficiary on a life insurance policy but names his current wife in a will, the proceeds will go to the ex-spouse. 

It’s important to work with estate planning, tax and financial professionals when setting up an estate plan so they can help you and your spouse figure out how to best protect your assets and pass them on with tax efficiency in mind.