When preparing for retirement women face a unique set of financial hurdles as compared to men, including increased longevity, lifetime income disparities, inadequate retirement savings and lower average Social Security benefits.
These hurdles, coupled with rising divorce rates for women older than 50 and fewer employment opportunities later in life, can cause an uphill battle for financial security in retirement.
Knowledge combined with action is power. Here are five actions women should take to bypass the most common financial obstacles they face while approaching retirement.
[See: 11 Great Investing Tips for Women.]
Have accounts in your name. Maintaining a bank and/or investment account, as well as a credit card in your name provides easy access to funds should you encounter events such as divorce, death or incapacity of a spouse. In the case of divorce, access to your own funds will allow you to hire an attorney and other advisors, as well as fund necessary expenses without delay or judgment. In the cases of death or incapacity of a spouse, lack of title or authority to transact through a power of attorney will likely prevent you from accessing funds when needed. Maintaining accounts in your own name can help carry you through these difficult transition periods.
Know what you own and owe. You should know where your investments accounts are held and how these accounts are titled. Further, if you carry any debt, you should know who you owe and who is responsible for paying the debt. From a debt perspective, running a free credit report will show the accounts that list you as a responsible party, as well as other vital information used to determine your individual credit score. Maintaining strong credit is essential, as a low to average credit score can affect many aspects of your life, including the ability to secure a loan at a favorable rate, the cost of insurance premiums, the ability to rent an apartment and even your chances of getting a job.
Understand Social Security. Social Security benefits are based on a 40-year work life. To qualify for Social Security benefits, a worker must have at least 10 years of work under his or her belt and the benefits differ for single individuals and married couples. For an average male worker, Social Security benefits will replace about 40 percent of his final year’s income. However, many women have extended periods of earning little to no income during those 40 years for reasons such as having to leave the workforce to care for children, parents, or other family responsibilities. As a result, Social Security provides significantly less benefits to single women because of these gaps in earnings records, as well as lower wages and longer life spans.
[See: The Best ETFs Retirees Can Buy.]
For married couples or divorced individuals, Social Security benefits work differently. A spouse may also collect Social Security benefits based on his or her status as a spouse or ex-spouse. The current age at which you will qualify to receive full Social Security benefits is gradually rising to age 67. However, you may receive reduced Social Security benefits beginning at age 62 if you retire early, if you are divorced, or if your ex-spouse is eligible for retirement benefits. You can also receive benefits at age 60 if your spouse or ex-spouse has died. It’s recommended to speak with a financial professional to determine the best Social Security strategy for your individual situation.
Recognize the drain of health care costs in retirement. According to a study by HealthView Services, a healthy 65-year-old woman living until age 89 is projected to pay $306,426 ($199,951 in today’s dollars) for total health care outlays compared to $260,422 ($176,769) for a man. Women face a higher health care tab because they live on average two years longer than men, not because they consume more health care in a typical year. As noted above, women, on average, have less retirement resources available to them, which makes the cost of health care more significant. To counteract this, first and foremost you should maintain a healthy lifestyle. You should also consider long-term care insurance (sooner rather than later as premium costs rise with age) and set aside funds through a health savings account. Lastly, you should budget for the rising cost of health care into your financial projections.
Realize the stock market is your friend. It is a misconception that the stock market is a risky place to invest your retirement funds. It is true that in the short-term, the stock market can be volatile. Over the long run though, the stock market will be more reliable than low-risk investments in providing the growth necessary to help you achieve your retirement objectives. To counteract the financial and emotional impact of volatility, it is imperative you define your immediate cash needs and invest your short-term funds in low-volatility investments, such as short-term bond funds, and invest your long-term funds in the “riskier” higher returning investments, such as stocks.
[See: 8 Things That Matter More Than Money for a Happy Retirement.]
Women need to recognize their common financial obstacles and take action so as not to let them derail their retirement. At the end of the day, staying educated and involved in your financial affairs is key to being in control of your financial future.
More from U.S. News
20 Awesome Dividend Stocks for Guaranteed Income
7 of the Best Health Care Stocks to Buy for 2017
The 10 Best Materials ETFs We Could Dig Up
5 Ways Women Can Prepare For Retirement originally appeared on usnews.com
