Aug 31, 2008

For Women Only: Plan for the Long Haul

In 2006, USA TODAY highlighted some of the ways that single women preparing for retirement are -- unlike their male counterparts -- hit with a double whammy: not only do they typically have smaller retirement savings than men, they also live longer. Here are some of the ways this plays out:

  • Women often quit working earlier than men. The average woman retires at age 62, the average man at 63. Married women tend to stop working once their husbands retire, even though the average woman is younger than her husband and will outlive him and have a longer retirement. But by working longer, women could contribute more to retirement savings plans and significantly boost their Social Security benefits.
  • Divorced women too commonly give up shares in their husband's pension plan. Some women's number one priority in a divorce is keeping the family house -- but they often give up more valuable shares of their ex-spouse's pension or retirement savings in exchange. So before signing off on the divorce decree, obtain as much information as possible from your husband's employer about the pension plan's long-term value to make sure it's a fair trade. You have a right to this information, but many pension plans won't provide it without a letter from your lawyer, according to Women's Institute for a Secure Retirement. (You should also tell the pension plan administrator that you're in the process of getting a divorce. That will prevent the plan from paying out your share to your husband before the divorce is final.) Bottom line: In some cases, the financial benefits of the pension may outweigh the home equity. If you do choose the pension, you'll need a separate court order -- called a qualified domestic relations order -- which recognizes your right to part of your ex-husband's pension.
  • Women invest timidly. Because women tend to have less money to invest, they're often more fearful of taking losses. But they live longer than men, which means they have longer retirements -- and more time to ride out the market and take full advantage of riskier investments, which typically return more over the long term. Because most women can expect at least 20 years in retirement, at least half their assets should typically be in stocks.
  • Women rent instead of own. Women approaching retirement age are more likely than male counterparts to rent housing. But there's a good reason to aim toward owning your own home in retirement: it's cheaper. For women, who typically have less retirement income and live longer, that's essential. Housing eats up 33.6% of the income of seniors who rent and are in the lowerst 25% income bracket, according to the Joint Center for Housing Studies at Harvard University. But those who own their own homes use an average of only 18.3% of income to pay housing costs. The reasons are fairly simple: If you rent, your rent is likely to rise year after year, and you have no chance of recovering any of that money; if you own, mortgage will probably be a fixed amount, and, over time, you could pay it off entirely. Even if you're buying just a small condo, you'll build up equity which you may eventually tap by using loans or a reverse mortgage. The trick is finding a house or condo you can afford. To do that, you might have to move to a part of the country where housing prices are lower, or settle for a smaller living space.