The Biggest Retirement Challenges for Women

Emily Brandon

Women generally live longer than men, which means additional years of retirement need to be financed. But women continue to have lower earnings and less retirement savings than men, which causes women to have lower retirement incomes and to be much more likely to spend their retirement years in poverty, especially if they become widows. Here are the significant retirement challenges women face and how to manage them:

Longer life expectancy. Although gender differences in life expectancy have been decreasing, women age 65 and older continue to outnumber men age 65 and older, and this trend is projected to continue over the next four decades. A man reaching age 65 this year can expect to live to an average age of 83, while a woman the same age can expect to live until 85, according to Social Security Administration data. But those are just averages. A quarter of 65-year-olds are expected to live past age 90, and 10 percent will make it to at least age 95. While longer life expectancies are good news for baby boomers, they also mean women will have to save enough for a longer period of retirement than men or work until an older age than previous generations to have a comparable retirement.

[See Why You Should Plan to Work Until Age 70.]

Lower earnings. Workforce participation rates have increased significantly for women ages 55 to 64, from 45 percent in 1990 to 60 percent in 2011, according to a recent Government Accountability Office report. But despite their economic gains, women continue to have much lower lifetime earnings than men. Over the last decade, the median income of women age 65 and older was approximately 25 percent lower than among their male counterparts. Women working full time earned a median of $36,900 in 2010, compared to $47,700 for men, the GAO found. Women also spend more time than men out of the workforce caring for family members. Women who retired at age 62 in 2000 were in the workforce an average of 12 years less than men. This makes it especially difficult for women to accumulate adequate retirement account balances that will last the rest of their lives.

Failure to take advantage of retirement benefits. Women are now more likely than men to work for an employer that offers a retirement plan. Some 61 percent of women held jobs at companies that offered retirement benefits in 2009, compared to 58 percent of men. "Women's gains relative to men were aided in part by men's loss of retirement security over the last several years," says Barbara Bovbjerg, director of education, workforce, and income security issues for the Government Accountability Office.

However, women continue to be less likely than men to be eligible for and participate in a retirement plan at work. Some women were not eligible for the retirement plan because they did not work enough hours, weeks, or months per year. And only 78 percent of women who were eligible for a defined contribution plan in 2009 participated, compared to 79 percent of men. Women who contribute to retirement accounts also tend to save less in them. Women's contribution rates were 6.7 percent of pay, compared to 7.2 percent for men. Kelly O'Donnell, vice president at Financial Engines, told the Senate Special Committee on Aging at a recent hearing: "Among our clients, the median 401(k) account balance for men age 60 and older is $82,000 and only $46,000 for women age 60 and older."

[See 7 Ways to Retire with $1 Million.]

Widowhood. Since women generally live longer than men and tend to have older husbands, they often spend the final years of their lives as widows. Some 70 percent of women age 85 and older were widowed, compared to only 24 percent of men age 85 and older. "Divorce or widowhood occurring late in life can be disproportionally devastating to women's retirement security," says Bovbjerg. Women's income fell by 37 percent upon widowhood, while men's income fell 22 percent when they became widowers, GAO found. Widows and widowers face additional financial challenges because they often end up living alone without anyone to share expenses with and have no spouse to help with caregiving in the event of an illness.

Failing to maximize Social Security. Women generally receive a higher proportion of their retirement income from Social Security than men. In 2010, 16 percent of women age 65 and older depended solely on Social Security for their retirement income, compared to 12 percent of men. And Social Security is the only source of income for about 21 percent of all widowed women.

It's especially important for women to maximize the amount they get from Social Security. "Taking Social Security benefits early results in a permanent reduction in the amount of the monthly retirement benefit," says LaTina Burse Greene, the assistant deputy commissioner for retirement and disability policy at the Social Security Administration. "Conversely, taking benefits later can result in a permanent increase in the amount of the monthly benefit." For example, a woman eligible for $1,000 per month at age 66 would receive only $750 per month if she signs up at age 62. However, if she delays claiming Social Security until age 70, her monthly payments will grow to $1,320 each month for the rest of her life.

[See What Older Workers Don't Know About Social Security.]

Married women should additionally coordinate claiming with their spouses to increase spousal and survivor's payments. At the end of 2010, 12.9 million female Social Security beneficiaries age 62 or older (54 percent) received at least part of their benefit as wives or widows of entitled workers. "Optimal Social Security decisions, especially for married women with low balances, can create more retirement-income wealth than the woman has accumulated in her 401(k)," says O'Donnell. "For many, we believe the best use of retirement accounts is as a bridge to fund retirement in the early years, allowing the deferral of Social Security benefits for as long as possible."