Retirement Risks for Women

Longer life spans highlight mismatch of expense and income trends.

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It's a classic good news-bad news conundrum. While women continue to outlive men, the consequences of their longevity often include serious physical and financial disabilities. Many older women confront chronic illnesses with limited financial resources. They are also more likely to live alone and, when their husbands die, many widows are unprepared for a likely drop in retirement income.

Older woman on hiking trail

"I think we thought that because women have been working more, that the [financial] gap between women and men would have gotten a lot better by now," says Anna Rappaport, an aging and retirement expert and spokesperson for the Society of Actuaries (SOA). "If you asked us 10 or 15 years ago, we would have said that gap was going to go away. But it hasn't."

Research by the SOA puts forth a compelling case that women and their spouses face a very unpleasant future unless they do a much better job of managing their assets and income today. And that future, sadly but realistically, is likely to eventually involve just the woman.

In addition to setting aside more retirement funds, Rappaport advises women to think more carefully about Social Security claiming strategies. The goal is to maximize older-age income. By continuing to work past age 65, for example, it might be possible to delay Social Security benefits. For most people, the current full retirement age for claiming Social Security benefits is 66. If benefits are claimed as early as possible—at age 62—the lifetime monthly benefit will be only 75 percent of what it would be if benefits were not elected to start until age 66. And for each year beyond 66, the benefit of delaying election increases by 8 percent a year for the next four years. (Except for annual inflation adjustments, Social Security benefits are usually capped at age 70.)

[Read: 22 Ideas for Better Retirements for Women.]

For married working women, Social Security benefits can appear deceptively large when they include payments to both spouses. However, when one spouse dies, the lower of the two benefits usually ends. This can place great financial strain on the surviving spouse—usually the woman. One prudent strategy is to use the lower benefit payment for non-basic expenses that could be stopped without life-changing impacts. Putting that lower benefit in the bank and other very safe investments would be especially helpful to the surviving spouse. For additional ideas, check out the online Social Security claiming guide produced by the Center for Retirement Research at Boston College.

"Another big issue for women is planning for long-term care," Rappaport says. "They live longer but also face longer periods of disability." Finding family caregivers is much harder than a generation ago. Families have fewer adult children, they often live long distances from parents, and they are very likely to be facing their own financial stresses.

In addition to longevity differences, women also spend a third more on healthcare than men, on average. That average gap covers all age groups and can be even more pronounced in dollar terms among the elderly. Medicare, Medicaid, and private insurance cover much of the discrepancy. But private insurance can be more expensive for women. Their other out-of-pocket spending is typically more costly as well.

[Read: Older Women Face Serious Money Inequality.]

The SOA highlights five post-retirement risks for women. Most are related to longevity:

Outliving assets. This is the key longevity issue. "Of women over 65 living alone," SOA research says, "four out of 10 depend on Social Security for virtually all of their income."

Loss of spouse. Because of the death of their spouse or divorce, women will tend to live alone in old age, and they are more likely to be poor. "The percentage of the female population over age 85 who are widows is more than 85 percent compared to about 45 percent for men." SOA says.

[Read: Target-Date Fund Performance by Fund Years.]

Decline in functional status. When women reach age 65, 30 percent of their remaining lifetime will be spent, on average, with one or more chronic disabilities. For men, the figure is 20 percent.

Healthcare and medical expenses. Health benefit costs may affect women more than men since they often have lower incomes but higher healthcare costs.

Inflation. The erosion of real incomes and investment returns is another example of how longevity has a disproportionate impact on women.