By Eileen Ortega, CTFA
While it feels almost archaic to address the wage gap between men and women in 2022, it is, unfortunately, a problem that persists. The consequences impact women during their earning years and into retirement.
This inequality, coupled with the traditional role of women as mothers and caregivers, has created a foundation in which retirement on her own is often an unconquerable hurdle. The hurdle can be raised higher due to the financial hit in divorce that women often contend with. This article considers the issue in more depth and offers five ways women can help stave off a retirement shortfall.
Why Women Are at a Disadvantage
When we are young, we are focused on our present, and for anyone, it takes time to settle into the mature perspective of planning for our future. We think to ourselves, “I have time to worry about that later.” Life ensues, we begin our careers, some of us marry, and some start a family.
Cultural norms, along with the glaring wage gap, lead many to step back from careers to care for children from birth to school age and, many times, beyond. Our children are our focus, as they should be. We don’t see the career break as a risk because our priorities are clear.
However, with an ever-rising divorce rate, the time away from the workplace puts women at a distinct disadvantage. Each career path has changed a multitude of times during the time away, and it is increasingly difficult to pick up where you left off.
You find yourself starting over, literally, from the bottom. As a result, your income is even further removed from that of your male colleagues, and now there is the challenge of competing against younger professionals for the same positions. It is a vicious cycle.
In cases of divorce, it is often true that women who have given up a career for the good of the family will receive alimony, a portion of the marital assets, and if they retain primary custody, child support until age 18.
This may sound fair, but when looking at the settlement in black and white, it is often reached when a woman is starting over in her career. Meanwhile, her husband is far ahead in his career path, with more financial opportunity and a more secure retirement.
I’ve seen many women who are role models in these circumstances who dig their heels in and work diligently to secure their future, saving, often sacrificing, to make sure that they don’t struggle in retirement. They are an inspiration, but not all of us have that kind of determination, self-discipline, or opportunity.
So what can be done to ensure financial security? Aside from a divorce settlement that will eliminate the financial risk? A friend recently shared this Morningstar article that speaks to just this question.
In summary, the article contains five relatively simple suggestions that could make a significant improvement in your post-divorce retirement security:
Retirement Contributions [401(k), IRA, etc.]
Whether just starting out or “restarting,” maximizing pretax contributions is one of the most powerful tools to build retirement savings.
While taking time from work can remove the opportunity to contribute to a company plan, women can still contribute to individual retirement accounts (IRAs), which will, like the 401(k), grow income-tax-free until retirement.
Benefiting from Automatic Investment Options
Establishing an automatic “pay yourself first” strategy will remove the emotional component of investment decision-making. In addition, the above Morningstar article discusses the use of target-date funds that will be invested for the long-term retirement goal.
Though not necessarily desirable, working just a few years beyond your original target date could have a meaningful improvement in the longevity and success of your retirement.
Make Deliberate Social Security Elections
The Social Security Administration provides each of us with estimated amounts we can expect to receive at certain age attainments (62—early retirement, 67—retirement age, or 70—maximum age).
A financial advisor can help determine the short- and long-term impact of delaying Social Security and help make what is an extremely important financial decision.
Lay a Plan for Health Care Costs
Oftentimes, one catastrophic medical event can cripple even the best-laid financial plan. Women’s longer life expectancy heightens the importance of planning for health costs in retirement.
You have many issues to consider, including long-term care, health savings accounts (HSAs), and careful selection of Medicare health plans.
A trusted financial advisor will have the tools to stress-test the impact of a health event and guide you in determining the most effective hedge against these costs.
Remember: Take Care of Yourself
These are a few, but not all, of the ways women can take control of their future financial security, even in the face of a devastating divorce. Wrangling the strength that we have within, the strength that enables us to take on the most difficult of challenges for our families, and redirecting that toward our own futures might at first feel selfish.
We are wired to “do for others first.” This is what makes us better caregivers. But not only is caring for ourselves healthy, it also is imperative to our future selves. Focusing on our needs can reward us with a retirement well-lived, free of financial worry.
Wherever you are in your life cycle—single, married, divorced, widowed—it is never too late to focus on the steps that will help you live the retirement you want. If you feel overwhelmed, turn to a friend or an advisor who has experience with these events and can help you navigate your path.
Our fiduciary wealth management firm in Ponte Vedra Beach, Florida, offers a complimentary consultation. We invite you to schedule a consultation today.