Whether due to divorce, widowhood, or personal choice, retirement planning for single women brings unique challenges and opportunities. The gender wage gap, living longer, and taking time away from the workplace for caregiving duties are among the financial challenges women face. They make saving for retirement a bigger challenge for many women.
Living Longer
The average woman in the U.S. lives five years longer than her male counterpart. As a result, she needs to prepare for a potentially longer retirement.
The Wage Gap
Women in the U.S. earn about 84 cents for every $1 earned by men, according to the U.S. Department of Labor, and they spend more time out of the workforce caring for children and parents, according to the Family Caregiver Alliance. As a result, women tend to accumulate less savings for retirement.
Being on Your Own
Do you know the age of the average widow? It’s only 59! Plus, 80% of women die single while 80% of men die married. Whether it’s by choice or not, many women end life single.
Planning for retirement plays a crucial role in ensuring a secure and fulfilling future. This week’s blog explores key strategies that can help single women prepare for a comfortable retirement.
1. Understand Your Financial Situation
Retirement planning for single women starts with an assessment of their current financial position. Consider the following:
- Calculate Net Worth: To calculate your net worth, you start by determining the value of your assets (savings, investments, property). Then you subtract your liabilities (debts, mortgages) from that total.
- Income Sources: Identify all income sources. This includes employment, pensions, social security, annuities, rental properties, and investments.
- Expense Analysis: At the most detailed level, track your current expenses. If you don’t want to do that, review your cash flow. After identifying your income sources, determine if your savings are increasing every month. If they are, your expenses are less than your income. You will also want to project how your expenses might change in retirement.
- Evaluate Cash Flow: Make sure your cash inflows (primarily income) exceed your cash outflows (primarily your expenses and debt payments). If they don’t, determine which expenses you can cut. You are likely increasing your debts when your outflows are consistently greater than your inflows. That’s not a viable long-term approach.
2. Set Clear Retirement Goals
Our life planning process can help you define what you want your retirement to look like. Creating your life plan can better align how you spend your capital (Time, Energy, Attention, and Money) with your values. You will want to consider:
- Lifestyle: What kind of lifestyle do you envision? Will it include elements such as travel, pursuing hobbies, maybe part-time work, or charitable activities?
- Retirement Age: Your expected retirement age will influence how much you need to save. Working longer can leave you with more money for retirement. But working too long can hamper your ability to participate in some activities that fit your ideal lifestyle.
- Healthcare Needs: When considering retirement planning for single women don’t forget about healthcare costs. Expenses such as insurance, long-term care, and out-of-pocket costs represent significant expenses for retirees.
3. Maximize Retirement Contributions
While working you will want to take advantage of retirement accounts and optimize your contributions.
- Pay Yourself First! When saving for retirement, use automatic deductions from your pay to fund your savings. It’s harder to miss money that never touches your checking account.
- Employer-Sponsored Plans: Contribute to your 401(k) or similar plans. Remember to contribute at least enough to receive your employer’s maximum matching contribution.
- Individual Retirement Accounts (IRAs): Consider Traditional and Roth IRAs to diversify your tax advantages.
- Health Savings Accounts (HSA): If you have a high-deductible healthcare plan, consider funding an HSA and using it as a retirement savings vehicle.
- Catch-up Contributions: If you are 50 or over, catch-up contributions to IRAs and/or employer-sponsored plans can help you boost your savings.
4. Diversify Your Investments
A diversified investment portfolio can help manage risk and growth:
- Asset Allocation: Balance your investments among stocks, bonds, and other assets based on your risk tolerance, your time horizon, and your financial plan. When investing in stocks consider diversifying by both size and location.
- Regular Reviews: Periodically review and rebalance your portfolio to ensure it aligns with your retirement goals as well as your target asset allocation.
- Asset Location: When considering retirement planning for single women, don’t forget about asset location. Asset location involves considering which account type your assets should be held in from a tax perspective. (You can read more about asset location in this blog.)
5. Create a Retirement Budget
Estimate your retirement expenses and create a budget:
- Essential vs. Discretionary: Determine your essential expenses (e.g., housing, utilities, healthcare) and your discretionary spending (e.g., travel, entertainment, dining out, gifts).
- Inflation Consideration: Don’t forget to account for inflation when estimating future expenses.
6. Other Financial Considerations
Here are some other things to keep in mind.
- Build an Emergency Fund: When you don’t have a partner to share financial burdens with, unexpected expenses or loss of income can be devastating. Strive to save at least three to six months of living expenses in an account you can access easily.
- Disability Insurance: According to the Social Security Administration one out of every four current 20-year-olds will be out of work for at least a year because of a disabling condition before reaching age 67. Single women without a partner’s income must protect themselves with adequate disability insurance. If you lose income because of a disability, you will jeopardize your immediate financial needs. You will also hamper your ability to type of disability insurance. Such insurance offers protection if you are injured in a way that limits your earnings.
- Plan to Stay Active in Retirement: Committing to social activity as part of retirement planning for single women is especially important. Senior isolation is associated with a host of health problems, including depression, cognitive decline, and heart disease. Plus, studies have suggested that a strong social network helps protect against dementia.
7. Consider Your Estate Plan
Make sure you have your estate planning documents in place and share your wishes with people you love and trust:
- Name Beneficiaries for Your Financial Accounts: It’s important to name beneficiaries. Doing so allows your assets to pass more easily to your heirs as they won’t need to go through probate.
- Have a Will and Consider a Trust: These documents are particularly important when you have specific wishes for your estate.
- Establish Advance Healthcare Directives: These can help your loved ones make choices according to your wishes. You can find free advance directive forms for where you live here.
8. Plan for Longevity
Women generally live longer than men, so plan for a potentially extended retirement.
- Longevity Risk: Plan to have your savings last through your 80s and beyond.
- Plan for Long-Term Care Needs: According to a 2022 study, the long-term care insurance premiums for a single 55-year-old woman are $3,700 per year. That is $1,480 more than what her male counterpart pays.
- Optimize Your Social Security Benefits: When you start claiming Social Security benefits matters. Your benefit will be up to 30% lower if you start claiming at age 62 rather than full retirement age (FRA) – 67 for those born in 1960 or later. Your benefit grows by 8% annually from FRA to age 70. Social Security will only cover part of your retirement expenses. Strategically combining it with your 401(k) or IRA can help boost your retirement nest egg.
- Create a Retirement Paycheck: When transitioning from work to retirement, you must learn to live without a paycheck. Most receive Social Security benefits. Some receive a pension. For some, annuities can be a consideration. Be careful with annuities though. They can be expensive. This blog provides more information about building a retirement paycheck.
9. Seek Professional Advice
Consider working with a financial advisor to develop a comprehensive retirement plan. A life plan would be even better.
- Personalized Advice: An advisor can provide personalized advice tailored to your specific situation and goals.
- Regular Check-Ins: Schedule regular meetings to review and adjust your plan as needed.
Retirement Planning for Single Women: Closing Thoughts
Retirement planning for single women involves careful consideration of unique financial and lifestyle needs. By assessing your financial situation, setting clear goals, maximizing contributions, diversifying investments, creating a budget, planning for longevity, and seeking professional advice, you can achieve a secure and fulfilling retirement.
This blog provides strategies for retirement planning for single women. Implementing these tips can help you confidently prepare for your future and enjoy a comfortable retirement.
If you’d like to discuss your retirement plan, please contact us. Please feel free to share this with anyone you think might be interested as well.
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For firm disclosures, see here: https://apprisewealth.com/disclosures/
Phil Weiss founded Apprise Wealth Management. He started his financial services career in 1987 working as a tax professional for Deloitte & Touche. For the past 25+ years, he has worked extensively in the areas of financial planning and investment management. Phil is both a CFA charterholder and a CPA.
Located just north of Baltimore, Apprise works with clients face-to-face locally and can also work virtually regardless of location.
