Why Many Retired Women Live in Poverty – And How to Prevent It

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Retirement for women is different than for men, and unless this fact is recognized and acknowledged, a woman’s retirement may become something less than golden. My intent in this article, based on 28 years of experience in the financial services industry, is to discuss what women can, even must do, to assure their years in retirement are some of the best years of their lives.

There are many reasons for women living in poverty during their ‘Golden Years’. Below are some you may recognize, and suggestions and solutions you may wish to consider.

Problem #1: Many women rely too heavily on their spouse

For income during the working years, for pension and social security benefits during retirement, and for ongoing financial guidance and advice throughout the years, with unforeseen and tragic results in many cases. (3 of every 5 elderly women face retirement without a husband).

Problem #2: Work Patterns

Women often have irregular work patterns, due to marriage, children, care giving and other responsibilities. This often leads to women not earning full pension benefits, or any benefits at all.

*Only 32% of retired women who have worked in the private sector had pension benefits, whereas well over half of men received them. *U.S. Census Bureau

Even when women do earn pensions, their benefits tend to be a fraction of what men receive because of their lower earnings and complicated vesting schedules that penalize them for moving in and out of the workforce. For these reasons men’s pensions tend to be upwards of two and a half times that of women.

Problem #3: Divorce

In all too many cases a divorce occurs, sometimes even later in life, and the financially inexperienced woman is set adrift in unknown waters. Often times the assets are divided in what appears at first glance to be equal, but the woman’s share may include the family home with a hefty mortgage payment, while the husband gets the pension and 401k plan, assets that will serve him well during his retirement years.

In addition, the ex-husbands income is not disturbed, while the woman’s income may be dependent on temporary alimony and/or child support. Whatever income she is able to generate by going back to work, often with little or no job skills and being out of the work force for many years, brings lower pay, therefore lower future pension and social security benefits.

Problem #4: Widowhood

Upon the husbands death the pension often ceases and social security benefits usually decrease, putting the widow in a financial bind.

One-third of women who become widowed are younger than 60. Half of all women who become widowed are younger than 63.

Widowhood can severely jeopardize a woman’s economic prospects. Elderly widows receive, on average, only $5,964 a year in Social Security benefits as compared to an average of $14,580 for the joint Social Security benefit received by a married couple.

Only 21 percent of widows receive survivor pensions based on their husbands’ benefits.

Of those who do receive a benefit, half receive less than $4,800 per year.

According to the *U.S. Census Bureau80% of women live longer than their spouses and often by many years — 14 years on average. The risk here is if she tries to maintain her current living standards she may deplete her savings over time. As health expenses or long term care needs arise she may be forced to reduce her standard of living, or spend down assets in order to get assistance. Neither of those choices bode well for her quality of life.

*U.S. Census Bureau

Solutions, Recommendations and Strategies

First, educate yourself about the family finances. Make sure you have a good overview and understanding of what assets are owned, how they are titled, who the beneficiaries are, etc. Prepare yourself to manage your own finances, as the odds say you will need to do just that at some point. Make sure you are named on all family accounts as owner, co-owner, or beneficiary. This establishes your legal right to these assets should the marriage end in divorce, death, or even if your partner becomes incapacitated.

Next, build what I call the Three-legged Stool of Lifetime Financial Security:

1) Inflation protected lifetime income

2) Growth/income investments for future needs

3) Long term care protection in the form of assets or insurance, or some combination of both

Some of the solutions to ensure your lifetime security could consist of:

1) your social security retirement benefit

2) a secondary inflation adjusted income you can’t outlive

3) a prudently managed growth/income account to keep pace with the cost of living

4) a creative and flexible method of protecting your potential long term care needs

5) time tested strategies of ensuring you pay no more than your fair share of taxes

Last but not least, seek out the assistance of an independent, experienced financial advisor, preferably one who is compensated by fee for service, much like an attorney or tax accountant. This would rule out the commission driven advisors, where there is a distinct conflict of interest.

Many of my clients are single, mature women, so I have been a witness to what they have experienced through my 28 years of advising and guiding them. My experience in working with them has given me insight into their unique needs, and has perhaps qualified me to better serve them, both during their working years, and throughout their retirement years as well.

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