Sometimes I am so jealous of my husband. Not only because he gets better looking with age and can lose 10 pounds in three days while I get crow’s feet and saddlebags, but also because some things just seem to come easier to him. Men seem to get the better end of the stick when it comes to retirement planning.
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Granted, men and women face different challenges when it comes to investing, spending, and savings. Gender plays a key role in determining the kind of financial future we plan for. It’s not quite as simple as women spend their money on shoes while guys spend theirs on toys like boats and ATV’s, and hopefully meet on common financial ground at retirement.
Retiring successfully is a place we all hope to reach. A life-long process in which the journey to it is perhaps more important than the destination. Historically men and women have taken very different paths to get there. I’d like to examine the differences in the way men and women plan for retirement and how to ensure we all get there safely and financially secure.
It seems men get advantages that women do not when talking about money and planning for retirement. Women in particular should begin saving and planning right away. Wages and life expectancy are the key reasons. Women typically earn less yet live longer than their male counterparts. According to a global comparison survey conducted in 2007, the average American woman out lives the average American man by more than five years. The standard recommendation is to contribute 10% of your income into your retirement vehicles. Based upon that, women should bump up their contributions to 12-13% of their annual income.
It’s also important because more than 70% of nursing home residents are women. On average a man spends one year in an assisted living facility as opposed to a woman who averages four years. Men can get away with waiting longer and having less long term care coverage than women. The average annual cost for a nursing home is about $80,000 depending where you live. It is much more financially viable for a man to forgo the expense of long term care insurance and instead pay out of pocket for a nursing home for a year or two. Women need to get long term care insurance. It is financially prudent to buy it before you reach age 61, that’s when the cost of premiums skyrocket for women. The average long term care insurance policy for a woman in her late fifties costs $2,200 a year. To keep costs down, spring for inflation protection on your policy. The costs of long term care are expected to rise significantly in the coming years which will cause premium rates to go up year after year.
The list of advantages that men seem to have over women when planning for retirement continues on into retirement. Social security is especially important to women. In 2008 58% of men collecting social security were under age 65 and ½, full retirement age. That would be fine on its own, but most women collect social security benefits based on their husband’s lifetime earnings, instead of their own. You are entitled to collect benefits based on either yours or your spouse’s earnings record, whichever is higher. If your husband takes social security before full retirement age it will lower the monthly benefits which will inadvertently hurt their wives who will most likely outlive them. It is best to delay taking social security as long as you can no matter if you are a man or a woman. Make sure to discuss this possible side effect with your spouse to appropriately plan for your future.
Another common pitfall women face in retirement is figuring out at what age they should retire. A recent poll found that 40% of husbands encourage their wives to retire when they do, even if they have not yet reached full retirement age. This is probably because men are a few years older than their wives and reach retirement first. By retiring earlier than you may have planned many women are shortchanging themselves. Typically in the decade before retirement men and women are at their earnings peak, they are earning the most money they have ever earned in the work record. By shaving off even just a few years of 401(k) contributions you are leaving thousands of dollars on the table. If one spouse is able to continue working for a few years longer than the other that is a wise choice. You may be able to live off of one spouse’s salary and avoid dipping into savings and social security benefits for a little while longer, allowing your money to go farther.
How to and how much to finance also helps illustrates the difference in investing styles for men and women. Even though women contribute to their 401(k)’s at virtually the same rate as men, they end up with nest eggs that are on average a third smaller, according to a study by MassMutual. This could be contributed to our different priority levels. Women often put more importance in managing everyday expenses and household budgeting than retirement planning and saving. The exact opposite is true of men. Their main priorities seem to lie in long term financial goals and planning. The downside of this being that rarely do the two meet to discuss this. It is important to know how much it costs to run your household when deciding how much to invest and how much to set aside out of your monthly budget for retirement. It is best when all parties involved in short term and long term financial decisions come together and share their knowledge for the betterment of everyone’s financial future.
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Until Next Week…
Keeping Money In Your Pocket,