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Updated on Monday, April 2, 2018
Although Nelson made a quite handsome salary when she was younger, she didn’t save because she spent about 25 years putting almost everything toward taking care of her three children, now all grown. She only started putting away money in 2006, but the financial crisis and recession wiped out all her investment earnings. She’s trying to catch up, but Nelson also has student loan debt and a mortgage, not to mention the costs of caring for her aging father. Nelson said she regrets not starting to save earlier.
“If I had put away even $100 a month 25 years ago, by this time my retirement (savings) would have been enough,” she said.
Nelson’s story is many older women’s story: They didn’t or couldn’t save much when they were young, and when they reach 50 or 60, they worry about not saving enough for retirement, while grappling with debt and caretaking tasks.
Older women’s money issues
Studies have shown that older women face severe economic hardships. Women ages 65 or older are 80% more likely than men of the same age to be in poverty, a 2016 National Institute on Retirement Security (NIRS) study found.
This is because women in general earn less than men throughout their careers, and they are more likely to take time off from their career to care for children and elderly family members, experts interviewed by MagnifyMoney say. That means they are likely to have even less savings and Social Security benefits in retirement.
Knowing that they may be in a greater need for health care and live five years longer than men, many women fear they will outlive their savings. As a result, they tend to work longer to make up for the missed savings throughout their career and investment loss following the financial crisis, experts say.
Labor force participation among women ages 55 to 64 increased to 59% in 2015 from 53% in 2000, peaking at 61% in 2010, according to the NIRS study.
Nelson, for example, went back to work just a few weeks ago after staying home since 2011, when she was diagnosed with a brain aneurysm. To financially stabilize herself after she got sick, she had to dip into one of her retirement accounts, which came with a hefty 20% penalty, plus taxes.
Nelson now works night shifts and has a day job of visiting patients at home to make extra money.
“[Women] understand the value of continuing to earn an income as a pillar of their retirement,” said Kerry Hannon, expert on retirement and author of “Money Confidence: Really Smart Financial Moves for Newly Single Women.”
“And if they are single, seriously, the longer they can keep working, the better.”
While working so much is the financially smart move, it can be exhausting. Nelson doesn’t get much rest.
“I don’t have a choice,” she said, laughing.
Among the older female population, those more likely at financial risk are single women — divorced, widowed and never married — and women of color, according to experts.
Life after retirement
Nancy Jervis, 73, a cultural anthropologist from New York, said If there is anything that she wishes she had done when she was younger, it would be to pay more attention to her money.
Jervis is now living on Social Security, an annuity and retirement savings of about $100,000 from 20 years of working at a nonprofit organization.
“I’m just making it right now,” said Jervis, who sees herself a member of the “plain, old American middle class.”
“If inflation happens, I’m messed up.”
Jervis has been single for most of her life. For years, she supported herself by working various temporary jobs in the U.S. and overseas, but was caught in a crunch at age 42 when she had her son, Ben. Around the same time, she started her first full-time job and was saving money for the first time — she had to once she had a child to raise all by herself.
The nonprofit organization started contributing 12.5% of her salary into a retirement fund, and she only had to save 2.5%. Her employer eventually lowered the contribution to 10%, and Jervis saved 5%. The organization also fully paid for the health insurance that covered her and Ben.
“I’m lucky that I had those benefits,” Jervis recalled. “Or, I would be in real trouble now.”
Jervis’ current annual income is a little over $51,000 — too much to be eligible for the city’s rent freeze program for seniors and disabled residents. After paying all her fixed living expenses, Jervis spends a good chunk of her fixed income on health care, which amounted to more than $7,300 last year.
Jervis doesn’t know what health care could cost her when she gets older. She worries about running out of money.
How can older women ensure a secure retirement?
Stacy Francis, certified financial planner and founder of Francis Financial, who frequently works with women around retirement, told MagnifyMoney that Jervis’ fear will resonate with almost every woman in their 50s, 60s or 70s.
Experts suggest that, in general, women should save 70% to 80% of their pre-retirement earnings to live comfortably in their later years. But, Francis said on the conservative end, she would recommend women try to reach 100%. The reason is that although some expenses will go down after retirement, such as commuting and work clothing, other areas of life may need more money, namely health care, which could be completely unpredictable and astronomically expensive.
But even on the low end, those savings goals can feel out of reach for women within a decade or two of retirement. The Schwartz Center for Economic Policy Analysis at The New School gathered a few calculators that can help you estimate how much you need to save for retirement based on your personal information. They are Target Your Retirement by the Center for Retirement Research at Boston College; the AARP Retirement Calculator; Retirement Nestegg Calculator by Dinkytown.net; and New Retirement.
While certainly a challenge, it’s not impossible for late savers to prepare for a financially secure future. We asked experts how to do it, and here’s their advice:
Delay Social Security benefits until age 70
Although it’s tempting to start collecting Social Security at age 62, experts suggest women who can still work and are healthy wait longer. Because for every year you don’t collect Social Security after your full retirement age, which varies depending on your actual age, your benefit goes up 8%, until you reach 70.
“Social Security is even more important for women [than for men] because we live longer, we are likely collecting longer,” Francis said. “It makes [more] sense for you to wait for that bigger benefit at age 70, and then collect it for the next 25 years, than collecting at age 65 that smaller benefit and collecting it for a longer period of time.”
Take advantage of catch-up contribution
Nelson plans to retire at 65, or 70 at the latest, if her health condition allows. To catch up with savings, she now contributes 13% of her salary to her newly built retirement account, and her employer contributes 7.5%.
Experts say the simplest thing for women to bump up savings for retirement is to take advantage of the IRS catch-up contribution. If you are age 50 and over, the IRS allows you to save $6,000 more on top of the $18,500 annual contribution limit in your 401(k). For individual IRAs, the catch-up amount is $6,500.
Invest more aggressively if you saved too little in the past
Jervis acknowledged that she has invested too conservatively over the years — her retirement fund allocation was always 50% in stocks and 50% in bonds when she was working. It’s even more conservative now that she is retired.
“Being too conservative in your investment can actually put you in a greater financial risk because us women we have a longer life expectancy,” Francis said, “as well as how many of us, unfortunately, are coming to retirement with not necessarily enough saved.”
Equities are the true engine of a portfolio, and women shouldn’t be afraid of it, Francis said. She suggests for women not on track with their retirement savings to invest more in stock if they have the risk tolerance.
A good rule of thumb for stock-bond ratio is to subtract your age from 120 (or 110) as a starting point to calculate your stock asset exposure, experts say. For example, if you are 65 years old, your stocks-to-bonds ratio should be 55:45, or 45:55.
Maria Bruno, senior investment analyst at the Vanguard Investment Group, told MagnifyMoney that for people in retirement, a ratio of 60:40 stocks to bonds is considered a balanced allocation for them.
“If God forbid she’s really behind, it could even be 30% of bonds,” Francis said.
This piece of advice has Jervis on edge because her savings are her emergency fund.
“Although I am seeing my savings diminish, and making money in the market is the way to go, I’m not sure I have the nerve to do it,” she said.
Think of yourself first, not last
Nelson has always been the breadwinner at home, even before she separated from her husband in 2012. For a long time, she had to juggle multiple jobs so she could take care of her children, which involved paying $1,000 a month for child care. She regrets not saving for retirement earlier, but she also felt like she didn’t really have a choice.
“Because [the] mistake we make is that we think, ‘Oh, I need to pay child care. I need to do this and that for the kids,’” Nelson said. “But then you don’t think about [yourself]. You put your retirement last.”
Women are natural nurturers, Hannon said, so they have an instinct to give. For example, experts say it’s common for women to take money out of their savings to help kids with school.
“Kids can get loans for college and you can’t get a loan for your retirement,” Hannon said.
While women may not be able to replace the money they gave to others instead of themselves in their early years, they can still protect their future by putting themselves first now. Of course, that’s easier said than done. Putting yourself first is rarely as simple as cutting off support for adult children.
Nelson’s 86-year-old father needs care around the clock. She chips in $1,000 a month to hire caretakers for him. Still, she does this while working toward her own financial goals. She just doubled on her mortgage payment to about $2,000 a month in the hopes that she won’t have to be in housing debt in 10 years. Meanwhile, she is about to start paying off her student loan debt — $52,316 — for a master’s degree in nursing she received two years ago, when she was staying at home with disability.
Adjust your lifestyle if you haven’t saved enough
Nelson doesn’t have much spare money for herself after saving for retirement, paying for her father’s caretakers and making debt payments. She cut back on shopping, dining out and going to movie theaters.
“I’m adapting, I’m managing,” Nelson said. “I won’t say it’s hard, because I’m not hungry.”
Francis stressed that it’s absolutely imperative that women make sure they stay within their budget now so they can afford their needs in the long term.
“If you have not been tracking your spending, guess what? When you retire, there’s no option any longer,” she said. “The stakes are too high that if you are not being conscious about where your money is going, there is no room for error and there’s no ability to make up for overspending in retirement.”
Although Jervis didn’t pay much attention to money when she was young, she has to now as she lives on a fixed income.
Facing deteriorating health, she’s been homebound for more than a year, and she has a home health aid come to her apartment three times a week. That is an additional $600 monthly expense that she would rather not spend.
Jervis said it’s not so dire yet, but if things got worse, she might cut more expenses like cable and her car (so she no longer has to pay for insurance) to make some wiggle room for more urgent health care expenses. She figures that, at some point, she’ll have to cut back on spending even more.
Prepare for unpredictable health care costs
All the women interviewed for this story, who are in their 50s, 60s and 70s are concerned about the unpredictable health care costs they will face in the future.
Consider a Health Savings Account
If you have a high-deductible health plan (HDHP), experts suggest you consider a Health Savings Account, which has a triple-tax benefit: The money you put into an HSA is tax-deductible; the balance grows tax-free and rolls over each year; and withdrawals from your HSA for qualified medical expenses are not taxed.
The annual maximum HSA contribution in 2018 is $3,450 for an individual and $6,850 for a family. If you are at least 55 years old, you can contribute an additional $1,000 annually. You can read more about using an HSA as a retirement tool in our guide.
Look into long-term care insurance
Buying long-term care insurance may be another way to prepare. Long-term care insurance is separate from your regular health insurance. It pays out for nursing home, home health care or assisted living and other expenses not covered by regular insurance when you have a chronic medical condition, a disability or a disorder, for two to five years.
Nelson bought a long-term care policy with her previous employer, which cost her about $100 per month. When she was sick and homebound, the policy paid out $8,800 a month. After she started her current job, the policy is still paying her $3,000 a month, which she will stop receiving in a year. Her current job also offers long-term care insurance as part of the benefits package, and Nelson said she plans to buy it as soon as her current coverage ends.
But not every job offers cheaper group insurance. Many people have to buy individual plans.
Francis, the CFP, said she’s in her 40s and she bought a long-term care policy when she was in her late 30s. Her family medical history compelled her to go with a premium plan, and while she admits buying the policy in her late 30s was a little early to start paying $3,700 a year for coverage she wouldn’t likely need for decades, she knew that buying it later would cost much more. She estimates her premium would be twice as expensive if she bought it today.
Francis said if women have close family members who have significant health issues, it may make sense for them to look at such care policies when they are younger.
On average, a 55-year-old single woman buying new coverage pays $2,965 a year for a long-term care policy that pays out $150 a day for up to three years, or $164,000 in total benefits, according to a 2018 price index from the American Association for Long-Term Care Insurance. A single 60-year-old woman can expect to pay an average of $3,475 a year for the same plan. And the average annual premium is $4,270 for a 65-year-old single woman.
Last resort: Medicaid
Jervis said she’d looked into long-term care plans, but decided not to buy because they are too costly for her. She can manage for now because she’s on Medicare, which covers 80% of her medical expenses, and she pays $300 a month for supplementary insurance, which covers the other 20%. But with greater health care needs on the horizon, Jervis thinks she will have to go on Medicaid. Without sufficient savings or long-term care insurance, that’s pretty much the only option.
What’s the takeaway for younger women
The financial obstacles these older women face are a cautionary tale for younger women. And they have some advice for them.
Start saving as early as you can
After learning from her own mistake of not saving early, Nelson told her daughter, Brittney (a MagnifyMoney reporter), to start saving as soon as she got her first job.
“Start saving for retirement now,” she said. “Even if you have kids, make your retirement your priority.”
Experts acknowledge that it’s hard for young women who are out of college to save 10% or 20% of their income, but they should nonetheless save, starting small and then slowly increasing the amount each year as they get raises. When you are young, time is on your side. The earlier you can start to put away money and benefit from compounding interest, the better, said Francis.
And spend less while saving hard.
“Do a budget. Live as mean and lean as you can,” Hannon said. “I’m not saying to not have a good life, but you have to balance it between enjoying life.”
Fight for salaries and raises
Another lesson an older generation of women learned the hard way: Negotiate your salary. Many older women didn’t negotiate when they were young, because they were not raised to do so.
“I didn’t feel I had the right to negotiate,” Nelson said, adding that she didn’t negotiate for salaries until five or six years after she started working. “I wish I had the courage, but I was scared that if I negotiated too hard, I might not get a job.”
They hope the younger generation will do better.
“Fight that wage,” said Hannon, 57. “Your starting salary is key to your financial security if you are going to stay at one company, because that’s where all your raises come from, so the higher you can start, the better you are going to be the rest of your life.”
Pay attention to your finances
Francis said the biggest misstep she has seen among older women is that they didn’t pay close enough attention to their finances while they were younger and working. And when they were a few years out from retirement, they’d find out they were behind on savings.
All too often, Francis said, women in marriages divert the task of investment and family financial planning to the husband. Hannon said she finds that many young women still at some level rely on men as a financial plan, expecting that they are going be in a partnership.
But odds are against their favor. Here is a sober reminder from experts: Most women are going to be single at some point in their life, and they need to be prepared for that.
In the U.S., there are 3.2 divorces per 1,000 people, compared with 6.9 marriages per 1,000 people, according to the Centers for Disease Control and Prevention. Roughly 40% of women ages 65 and over were widowed, compared with about 13% of men, according to the U.S. Census Bureau.
“You should always plan your money as a single person,” Hannon said. “Don’t defer it. If you defer it for somebody else to make decisions, it’s a huge mistake.”