Retirement presents a major conundrum for American women.
At a time when women are living longer, they earn and save less money than their male counterparts.
The average lifespan for women is 8 percent longer than that of a man, which means that a sound retirement saving and planning strategy is essential. Beyond savings and planning, the role of women as a caregiver in society is another issue that impacts retirement, because many women end up taking care of aging parents or supporting a grown child. This has the potential to negatively impact both their wage-earning capacity and their ability to plan and save for retirement.
Even if retirement is years off, it is never too early for you to embark on this journey. With two out of five women expected to live into their 90's, prudent retirement planning for women is an absolute necessity. Here are some sobering statistics from the U.S.
With two out of five women expected to live into their 90's, prudent retirement planning is an absolute necessity. Here are some sobering statistics from the U.S. Center for Disease Control:
- At birth, a woman has a life expectancy of 81.3, while a man has a life expectancy of 76
- The average 65-year-old woman will live to age 85, while the average 65-year-old man will live to be 83
- The average 75-year-old woman will live to age 88, while the average 75-year-old man will live to be 86
According to a study conducted by MetLife, most women expect to retire at the same age as men, which translates into an average of 22 years of retirement.
With a retirement length of 16 percent longer than that of their male counterparts, you will simply need more money to sustain retirement than a man of the same age. Even a few years difference can make a considerable difference in the savings required to sustain retirement. When considering the expenses associated with this extra time, you must account for increased health care expenditures, housing and food costs, unexpected expenses and personal goals.
Your retirement plan should incorporate inflation, which is expected to increase by 2.7 percent a year as of mid-2013, and if historical trends prove themselves reliable, we can only expect this number to increase.
Health care inflation, while slowing from its previous torrid pace, is still significantly higher than average inflation. A study by consulting firm PriceWaterhouseCoopers pegs the rate of healthcare inflation at 6.5 percent in 2014, down from 7.5 percent in 2013. In addition, changes coming due to health care reform have increased uncertainty about how much healthcare costs will increase in the future once it is fully implemented.
Retirement Threats For Women
In planning for retirement, you need to be aware of the three primary threats that can either derail you from saving enough or drain your resources during retirement. These are:
- Longer lifespans: As discussed above, you’re more likely to live longer than your male counterparts. Because this is entirely out of your control, all you can do is to save enough to ensure that you don’t run out of money if you live longer than expected. You can also help counter this threat by working with a savvy, experienced financial advisor for women who can create a realistic retirement savings and distribution plan that will show you how much you need to save to achieve a certain level of spending in retirement.
- Caring for aging parents: Women traditionally have taken care of their aging parents and despite the fact that older women are employed at higher rates than they were in previous generations, this hasn’t changed. A woman who is the primary caregiver or even part-time caregiver for her parents may have to either quit her job or cut back on her hours and/or spend money on their care that otherwise would be earmarked for retirement.
- Supporting grown children: In an economy where many college graduates are unemployed or underemployed, more parents find themselves with children returning home to live while they look for a job, apply for grad school or “find themselves.” The emotional and financial disruption caused by this can set back retirement savings plans and cause unexpected spending.
Preparing for Retirement
While retirement may seem far distant in the future, it gets closer every year. In order to craft the retirement of your dreams and ensure adequate preparation, there are a number of steps to take, including:
- Start saving: Set a goal of saving between 10-15 percent of your income each year.
- Cut down on debt: Entering retirement debt-free is a great gift. If you have credit card debt, start by reducing that debt, then move on to other types of debt. When you pay off debt, cash can be freed up to invest wisely for the future, save prudently and provide for the future.
- Decide when to take Social Security: The decision about when to take Social Security is an important one. By putting off tapping Social Security benefits for even a few years, the ultimate monthly benefit will be larger. If you’re planning to continue to work into your mid and even late 60s and can afford to wait, it makes sense to postpone taking your benefit.
- Hire a financial planner: Even the most financially savvy woman can use an objective financial planner on her side to craft a comprehensive savings, investing and retirement plan for the future.
- Make a list of goals: By having goals to aim for, it’s easier to commit to a savings and investment plan to support those goals. Your goals can always be changed and adjusted based on various circumstances, but by setting the goals it is easier to move forward.
- Contribute the maximum to retirement plans: By contributing the maximum amount possible to retirement savings plans, you position yourself to continually grow the value of your retirement plans. That will give you this best opportunity possible to eventually meet your goals. This is especially important with 401(k) plans, where many employers match savings. Employer matches are the equivalent of free money that you don’t want to miss out on.
There is so much involved in saving and planning for retirement it can seem overwhelming. But with the help of careful planning and an experienced financial advisor, you can work to put yourself in a strong position to enjoy retirement. Spending some time now making savvy decisions could make your retirement years the best years of your life.
Planning for your hopes and dreams. After all those years of working and saving, you deserve to enjoy yourself! So think about your hopes and dreams for this time in your life, which may also include helping out family members. Every situation varies; here are some of the issues to consider when thinking about saving for retirement and retirement income distribution planning:
- Grandchildren’s education: Whether it’s helping pay for a private preschool or saving for college, many grandmothers want to contribute to paying for their grandchildren’s education
- Regular vacations: Whether it is yearly cruise or a vacation home, visiting different destinations during retirement is a component of a lifestyle than many retired women desire
- Club memberships: Local country, tennis and health clubs are a way to socialize and get exercise, both of which contribute to an active, healthy lifestyle
Depending on the amount of money saved and the retirement income stream, some or all of these options are possible when structuring a retirement portfolio. It’s important to educate yourself, enlist the help of seasoned professionals and call on trusted family members to assist in this process. Though a delicate dance, the retirement of your dreams can be yours if you consistently dedicate yourself to achieving that goal.
Caring for Aging Parents
If you’re like most women, caring for aging parents is a part of your life or will likely be a part of your life in the future. In most cases, this task tends to fall on daughters rather than sons. Add a caregiving role to the fact that most women are still underpaid compared to men, as noted in Time magazine, and that can spell financial disaster to a retirement plan.
Martha Beck, a best-selling author and coach, writes eloquently for Oprah.com about the topic of caring for aging parents in a time where we seem to be grappling with this issue with utter disgrace and clumsiness. More than 34 million Americans care for the elderly, and that number will only increase as the baby boomers age. Caregiving can bankrupt women financially and emotionally, while others can suffer emotional disturbances and still others go without a decent night’s sleep.
Women – caregivers by nature – are often helpless observers of their own fate playing out before their sleep-deprived eyes. With savings often draining away, and quality of life for the elderly less than ideal, it is time that society takes action and explore ways in which to address caring for aging parents in a prudent manner while maintaining the quality of life for all.
Because care for the elderly is not just an individual issue, but an issue for society at large, this means that while the welfare of aging parents is of the utmost concern, as a woman you must also consider your own retirement.
You have a responsibility to take care of yourself emotionally and financially even in the midst of a parent’s healthcare crisis or in a long-drawn-out caregiving situation. In either situation, there are steps that you can take that can help illuminate the road ahead, including:
- Visit a financial advisor: If your parents are still coherent, visit a financial planner together to allocate funds for health-care, basic living expenses, and possibly assisted living facility fees or retirement home cost.
- Consult an attorney: If possible, enlist the help of an attorney who can set up a power of attorney and other important matters. If you’re responsible for the care of others, you must have access to their funds so that you can provide care without wiping out their retirement accounts.
- Avoid denial at all costs: As parents age, it is easy to dismiss unusual behavior. Try to recognize such behavior before it spirals out of control and take action to cut losses. Set a plan in place to avoid wasting money which can easily create discomfort, stress and hurt for all involved.
- Stick to a personal retirement plan: Such a plan needs to involve ensuring that certain funds, especially retirement plan funds, are set aside exclusively for your retirement and aren’t used to pay eldercare or other expenses.
- Ask for help: As a self-sufficient woman, it is very difficult to ask for emotional, financial or practical help. Yet caring for an elderly parent is draining in so many ways that help is vital and necessary. It’s a way for you to preserve your strength so you can help your parents, children, others and, most importantly, yourself.
Assisted Living Facilities
Among the variety of housing options for the elderly, assisted living facilities have become very popular. These facilities fill the gap between independent living and nursing home care.
Assisted living facilities can make it easier for seniors to make friends while getting additional help and taking the burden of care of their children. Many facilities offer activities, healthy food options and provide a sense of independence for the aging adult.
Though typically privately run, various state, local and federal government agencies are in charge of regulating assisted living facilities. If you and your parents are considering assisted living, be sure to research options thoroughly. Convenience does come at a cost, and while some seniors can afford the approximately $1,500 to $3,000 a month that most facilities charge, in some cases, this expense will be borne by the children, typically the daughter.
If you’re on the brink of retirement, the opportunity to financially assist parents in need can raise difficult issues. Even if you don’t have the extra cash to spare, especially with pressing retirement savings needs, you may decide to help out. Medicare might cover some assisted living, though frequently long-term care isn’t covered. A consultation with the assisted living facility in question or the Medicare website will help determine whether financial assistance will be forthcoming from Medicare.
When visiting and researching assisted living facilities, consider these issues:
- The monthly costs and what is included in those costs and what is extra.
- Additional services and activities available for an extra cost.
- The facility’s policies on payment.
- The availability of Medicare coverage or other financial assistance.
- The history of the facility in terms of safety and patient satisfaction.
When looking at funding options, take a look at all of your parents’ assets. Talk to their financial advisor, if they have one. They may have funds or assets that can be liquidated in order to cover the costs of the home. If one parent is remaining in the home and one parent needs additional care, a reverse mortgage on the parents’ home could be an option to pay for assisted living or other expenses.
This option gives the elderly with significant amounts of equity in their homes fairly easy access to that equity, but there are costs associated with it. Be aware that if both parents need outside care and live away from that home, there is a certain point at which it will be sold, so be careful.
Finally, carefully consider all the options with your parent or parents before making a decision. Though expensive, assisted living facilities can be a viable option for many. The independence assisted living provides is not only beneficial to parents, it is helpful for children, especially daughters because it could enable you to continue to work and contribute to your own retirement. Choosing to go with an assisted living facility may even save money, as it would allow potential caregivers to continue working and saving money for their own retirements.
Supporting grown children
Baby boomers undoubtedly adore their children, and many of them are delighted to support their children by paying for their education. With that financial investment in a college education – which can easily run over six figures – most parents have the entirely reasonable expectation that their children will graduate and find gainful employment. When I graduated from college, my friends and I would chide anyone who holed up in their parent’s basement past the age of 20.
Times have changed, and this does not mean that Americans have simply adopted the Japanese style of multi-generational living. Baby boomers may not be embracing the idea that their adult children are living with them, but it is happening at alarmingly increasing rates for a number of reasons, including the high unemployment and underemployment rate among college graduates.
Why aren't we overjoyed that families have come together to share their lives for a few more years before entering into adulthood and all that comes along with it? Though Boomers may love the company of their grown children, the financial burden associated with the addition of their houseguests can spell trouble. Higher food bills, increased utilities, and requests for spending money can place a stress on finances.
As a mother, this presents difficult choices. You may comply with your children's requests for spending money or funds to help repay their student loans, even if it means withdrawing money from places it should be left to save for retirement. The Kitchens Group conducted a survey among women in Orlando, Fla. and the results aren’t surprising. Nearly one in 10 of the women surveyed had a child older than 18 living at home for indefinite periods, and 12 percent were primarily responsible for their adult child's finances.
Baby Boomers have spent more money on their adult children than any other generation. This is due to the fact that many enjoyed great success during their working years and want to share it with their children. This generation was fortunate enough to come of age during a time when America was teeming with jobs, opportunity, and a young, energetic workforce. When those baby boomers settled down and had children of their own, many wanted to provide their offspring with a life that the children of the descendants of the Great Depression were not privy to.
As a result, many of the children of baby boomers receive cars at age 16, shopping trips, fancy sports gear, vacations galore and a college fund to match. When they reached maturity and headed off to college, their parents sent them with a hooray and an exuberant wish for success. Though many did obtain lucrative jobs, some were less fortunate or simply less motivated than their parents before them.
If you’re like most mothers, you have stepped in to lend a helping hand to your child during a period of unemployment, even to the point of funding graduate school. Though acting with the best of intentions, if this type of behavior continues it could slowly but inexorably drain your retirement account, resulting in utter financial disaster.
With 86 percent of women surveyed claiming that they were fully independent by their mid-20s, there has certainly been a change of pace for the children of those boomers. You likely remember the time you could not wait to get out of your parent's house and be on your own. Changes in the economy and elimination of certain jobs in our country may contribute to this trend, but regardless of the reason that more young adults are heading back to the home front, it is a potential problem.
There were some common themes in the Kitchens Group survey, including the fact that some adult children, far from being grateful for the financial assistance given to them by their parents, had to be hounded into helping with chores.
If adult children living at home aren’t willing to help out around the house in exchange for free rent and board, the chances seem small that there is much effort being put into a job search and ultimately being self-supporting. And with an adult child in the house draining emotional and financial resources, it can be difficult for you to focus on building your own retirement and future.
Many women admit to buying their adult children cars, paying off their credit cards and managing their student loan debt. Whatever the situation, there are solutions to this dilemma that don’t involve you jeopardizing your own finances for that of your child. It isn’t a matter of turning a child away, but rather being proactive in efforts to encourage them to leave the nest, this time for good.
There are ways to provide support in a healthy manner that doesn't involve you compromising your own financial future. For example, an adult child may live at home for a time and pay rent while saving for a down payment for a home. With an end in a sight and the goal of obtaining a home, everyone wins. Home prices have soared in the years since the boomers bought their first abode, even when taking into consideration the fact that the housing bubble has burst.
What to do to help your child gain financial independence
There are a variety of steps you can take to help your children become financially independent, steps that will benefit you as a parent and help their growth as individuals, including:
- Setting boundaries: Sit down with your child and discuss what responsibilities that grown child will take over if they live with you. If there is other assistance being provided – financial, use of a car, whatever – discuss current or eventual repayment terms. Repayment could be non-monetary, such as the child taking over maintenance of the lawn from a lawn service. That would enable the child to take responsibility and you’ll save money on lawn care.
- Explaining your financial situation: Sit down with your child and discuss your financial situation in general and your retirement specifically. Many young people have no concept of the financial aspects of retirement, so it’s on you to dispel that ignorance. Your children – not just the one who may be living with you -- need to understand that you are going to have to live on a certain amount of money for a long period of time and that inflation will only make this even more difficult. Hopefully, an understanding of your situation will help all of your children become more responsible and realize that you aren’t a piggy bank.
- Creating a timeline for moving out: If your child moves in with you, create a timeline for a move-out date and do that right at the beginning. An open-ended situation can be uncomfortable for everyone, as there are no boundaries or limits and you may feel resentful as well as being able to ill-afford the extra expenses involved. You have an obligation to think about yourself and not just the well-being of your adult child.
- Helping with the job search: If your child is unemployed, you can help research job opportunities or connect him or her to people that you may know who are aware of jobs that the child could be qualified for. While you don’t want to take over the job search, you can act as a resource and support, perhaps by helping the child create a LinkedIn profile and provide encouragement to devote a certain amount of time each day to a job search and get involved in networking opportunities in your area.
- Refraining from enabling: The definition of enabling is doing something for another person that the person has the capacity to do for him or herself. For example, your child is perfectly capable of doing laundry, so don’t just add it to yours and do it. It can be hard as a Mom to step back, but the child will never learn to personal responsibility otherwise.
A final word
As a woman, you have more power today than ever to follow your own destiny. As women become more educated, and visible in the workforce in a variety of high-powered jobs, there is much optimism that their financial and emotional lives will improve, resulting in a comfortable and enriching retirement.
However, this won’t happen without you and other women preparing for the future by taking responsibility for their retirement. The first step is to start saving by putting aside a minimum of 10-15 percent of total income.
The second step is for you to fully embrace your role of taking financial responsibility for yourself and placing caretaking of others in that context. While caretaking can be a wonderfully rewarding role, there are some aspects that aren’t compatible with creating a financially secure retirement for yourself. By fully understanding the implications of all caretaking roles – from caring for aging parents to providing for grown children – you can position yourself to make healthier emotional and financial decisions.
Please contact me if you or someone you know would like to discuss your retirement planning needs.
Image credit: Riverside Church