Women and Retirement
“Teach me how to be a widow.”
At first blush, this sounds like a pretty morbid statement. It’s predicated on the fact that someone will die. And quite often, when we’re talking about your average American couple, it’s the husband who will pass away first. (In fact, it’s estimated that men will die nearly 6 years before women, as the life expectancy gap continues to grow.)¹
This is something I heard recently when talking with a couple I know, I’ll call them Sam and Mary from North Falmouth. Both in their mid-60’s and married for over thirty years, Sam and Mary were on the cusp of retiring in the next 2 years and we were discussing their retirement plans with me. During their marriage Sam had typically handled their finances, which is not uncommon. In most marriages, we often see one partner take on the financial aspect of their lives as part of the division of labor and it’s common to see either the husband or wife take the lead.
Mary was realizing that she could easily outlive Sam – who, besides being male also has a family history of heart disease that has taken some of his uncles and grandparents to the pearly gates before their time. As we went over their assets and income needs in retirement, Mary commented that someday she would probably have to manage their portfolio on her own and she didn’t feel like she knew enough to do it. So, one her pressing goals was to learn all she could about money and what would happen if she found herself a widow.
Unfortunately, Mary is not alone in this thinking. In fact, the transfer of wealth expected of baby boomers over the next 2 decades is expected to exceed $84 trillion dollars! Much of this is expected to pass to the next generation, but not before many boomer women first inherit and manage it before their own deaths. And while women have made great strides in the workplace and advanced in many other areas, one area that is often overlooked is retirement readiness. So, this week with our time together I’d like to dig into some of the unique challenges women face in retirement and ways they can better prepare for the possibility of going solo.
For a variety of reasons, many women already feel they are behind when it comes to being financially prepared for retirement. There are many ways their financial lives can be thrown off-track during their working years that can affect their retirement security. Get this, according to recent research from financial services firm Edward Jones and aging research provider Age Wave², half of women said they are behind on retirement savings, versus just 35% of men, according to a 2022 Goldman Sachs report. And a majority of female retirees, 81%, have experienced at least one such unexpected financial event, versus 69% of men. The most common curveball for both sexes is having a spouse or partner pass away, with 77%. And retired women are also more likely to face other shocks, including the death of another family member or close friend, suffering a financial setback or becoming a caregiver.
In fact, caregiving in particular tends to be a significant setback for women. A majority of women said becoming a caregiver was a life-destroying event both from a financial and life standpoint, according to the research. Women are more likely than men to be caregivers for family, and a majority of unpaid family caregivers are women. Family caregivers provided an estimated 36 billion hours in unpaid care in 2021, according to AARP, amounting to work worth $600 billion³.
Because women are more likely than men to be the primary family caregiver and take unpaid time off to care for their own children or relatives, this can lead them to leave the workforce, pause their careers or seek more flexible, part-time jobs that often don’t offer employee retirement savings plans. These pauses or shifts in career trajectory can reduce the total funds saved and accumulated in employer-sponsored retirement plans. And lower lifetime earnings may mean fewer opportunities to save for retirement as a whole.
For women, investing itself often looks different, too. It often takes a backseat due to lower lifetime earnings compared to men, as well as an increased focus on caregiving priorities. According to a study from YouGov Omnibus, overall women are less likely to invest than men, with 52% of women revealing they have never invested, citing with a lack of knowledge and confidence holding them back. ⁴ Without a financial plan that includes investments, women can potentially miss out on the returns that can be earned on their retirement savings over time.
Of course, how to save and invest as a woman is a significant challenge that needs to be addressed. If we look at Sam and Mary, their collective savings were more than enough to sustain both of them throughout retirement, so their individual contributions were not the problem now. Rather, Mary just needed more information to be able to comfortably manage it if she were to outlive Sam.
What this reinforces to me is the need for both parties in the marriage to understand finances. No, I’m not suggesting that it’s wrong for one partner to take the lead in money management in the family, but both need to be educated about money and informed about their own situation. For Sam and Mary, this meant going over their retirement system in great detail and making sure she understood it. Mary needed to know what assets they had, where, and what the purpose was for their money. She needed to know how Social Security works if Sam dies first. She needed to understand what their unique risks were and how they were being addressed, what their legacy plan was for their own children and grandchildren, and more.
Folks, no one wants to think about becoming a widow or widower, but preparing for the possibility financially can alleviate tremendous stress. In the case of Sam and Mary, it helped her understand her stakes in retirement and brought their future finances into perspective. Morbid or not, have these conversations sooner rather than later – your future self will certainly thank you!
And as always - be vigilant and stay alert, because you deserve more!
Have a wonderful Christmas. This is a magical time of year.
Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, and Mansfield, MA.
Insurance offered through its affiliate, CutterInsure, Inc. We do not offer tax or legal advice. Jeff can be reached at jeff@cutterfinancialgroup.com. This information is intended to provide general information. It is not intended to offer or deliver investment advice in any way. Information regarding investment services is provided solely to gain a better understanding of the subject of the article. Different types of investments involve varying degrees of risk, including the potential for loss. Therefore, it should not be assumed that future performance of any specific investment or investment strategy will be profitable. Insurance product guarantees are backed by the financial strength and claims-paying ability of the issuing company. Market data and other cited or linked-to content is based on generally available information and is believed to be reliable. Cutter Financial does not guarantee the performance of any investment or the accuracy of the information contained in this article. Cutter Financial will provide all prospective clients with a copy of Cutter Financial’s Form ADV 2A, Appendix 1, applicable Form ADV 2Bs and Form CRS as well as the firm privacy policy. Please contact us to request a free copy via .pdf or hardcopy. 1. http://tinyurl.com/4cxwrm3u 2. http://tinyurl.com/3w3czf4f 3. http://tinyurl.com/4786v9a8 4. http://tinyurl.com/ykd94858 5
