Tips To Help Women Retire Comfortably

The Early Show financial expert Ray Martin said more retired women than men become poor. In his column, he offers tips for older women to secure their standard of living.

While some of these women were poor when they entered retirement, many married women were not poor when they entered retirement but became poor after retirement.

So why do so many women end up poor in retirement? One reason is that the retirement income system in the United States is stacked against workers who have fewer years in the workforce and have lower career earnings.

There are several ways this system negatively affects the retirement security of many women. First, women, married women in particular, are much more likely than men to work part-time, either for their entire working career or for part of their careers. In 2004, about 25 percent of married women in the labor force aged 25-54 worked part-time as compared to only 5 percent of men. Second, women have fewer years in the labor force than men. Among retired workers, women spent 32 years in the labor force as compared to 44 years for men.

Child care-giving responsibilities, which are mostly shouldered by women, affect their participation in the labor force. Slightly more than 50 percent of women with children under age 3 were in the work force as compared to 79 percent of women with children aged 14 to 17. As a result, women have lower lifetime earnings as compared to men, are more likely to work part-time and they spend fewer years in the labor force.

Of women who do join the labor force, a larger proportion tend to work for nonprofit organizations or smaller employers, fewer of whom offer employer-based retirement plans compared with larger businesses. A study of small employers by the Employee Benefit Research Institute found that only 46 percent of employees who work for small companies (fewer than 100 employees) participate in employer-based retirement plans, versus 70 percent at firms with over 100 employees.

The U.S. Department of Labor reports that 12 million women work for small firms that don't offer pensions, and 25 million women work in the service and retail trade sectors, where pension participation rates are the lowest.

Also, workers covered by union agreements are twice as likely to have pensions as those who are non-unionized, but women are half as likely as men to hold union jobs. As a result of this, only 40 percent of women have pension benefits at retirement as compared to 53 percent of men and women's pensions are only 65 percent of what men typically receive.

These workplace demographics and the reality that women are more likely to take time off from an income-earning career or work part-time also negatively affects their Social Security benefits. According to the Social Security Administration, the median number of years of covered earnings for women was 29 years versus 38 years for men and the average monthly Social Security check received by women was $774 per month versus $1,006 for men.

According to the US Social Security Administration, approximately 29 percent of non-married women aged 65 or older are poor or nearly poor as compared to only 8 percent of married persons.

Why do so many women who enter retirement financially sound, later become poor? The main reason is that they do not stay married in retirement and the main cause is not divorce, but rather longevity — life expectancy at age 65 for women is 19.6 years and 17 years for men.

Also most women marry older men. When married women end up widowed, two things happen to their retirement income: private pensions are either reduced or disappear and the couple's Social Security benefit is reduced by one third to as much as one half.

The reality for many married women who enter retirement is that they later become poor because they suffer a severe drop in retirement income — employer-provided pension benefits and Social Security — after their spouse dies.

So what can women do to improve their financial security in retirement? There are several strategies that, if taken collectively, can help to provide greater retirement financial security for women:

Continue Working:

Clearly one solution is for women to stay in the workforce longer and continue to work as they age. Doing this would enable women to accumulate a longer earnings history of their own, which can increase retirement income and savings they are entitled to under their employer's pensions and 401(k) programs. Working longer also leads to a delay on drawing down on retirement savings or beginning retirement pensions — leading to increased income in retirement.

Women who work longer and retire at a later age can also increase their monthly Social Security benefits. Women who rejoin the workforce to continue employment increase their Social Security benefit as the years with "zero earnings" are replaced with years with earnings, increasing their overall earnings history on which benefits are based, leading to higher Social Security retirement benefits.

Seek Employment with Retirement Benefits:

When seeking employment opportunities, women should look for companies that offer paid-parental leave programs and good retirement savings programs. This combination of benefits can help reduce the impact on your retirement savings when taking extended leave and can provide retirement savings opportunities with the additional employer matching contributions.

Continue Retirement Savings:

A negative impact on retirement savings for women who leave the workforce is that they do not continue participate in an employer provided retirement savings plan such as a 401(k) plan.

But women who do this, even if only for a few years, need to continue to accumulate retirement savings in their name. One way to do this is to open and contribute to a Spousal IRA. As long as married women have a spouse who is working and earning an income, women in this situation should consider opening and contributing to a Spousal IRA, where their income earning spouse can contribute up to $4,000 per year ($5,000 if 50 or older). Spousal IRAs allow non-earning women to continue to accumulate retirement savings in their own retirement accounts, which provides additional individual retirement security in the event of divorce.

Participate Retirement Benefit Decisions

When their husbands are making retirement income elections for pensions, married women need to know the critical difference between the retirement income paid to the primary retiree (their husband) and the surviving spouse (themselves). Depending on the options selected at retirement, current monthly pension amounts can be reduced by one-third or half of the amount received while both spouses are living.

Where a pension provides a substantial amount of retirement income, women need to ensure that their husband selects the option that pays them an adequate survivor income. Married women need to know the sources of their retirement income and how much these will be in the event that they get divorced or their spouse passes away before them.

Take an inventory of all retirement accounts and sources of income such as pensions, 401(k) plans and Social Security. Also, verify that you are the beneficiary of all retirement accounts and life insurance policies that the household is counting on for retirement income — mistakes in this area can unintentionally leave retirement accounts to children and reduce the amounts left to the spouse.

Delay Husbands Social Security:

Women need to know that should their husbands die, under Social Security they are entitled to a survivors benefit that is equal to 100 percent of their husbands actual benefit, if that exceeds the benefit they are entitled under their own earnings history.

From a married woman's perspective, assuming she is likely to outlive her husband, she should encourage her husband to consider delaying his claiming of his Social Security benefits until his age 69 or 70. The affect of doing this is that the amount he receives is increased by delayed retirement credits, thus increasing the amount of income she would receive for her life upon his death.

Manage Household Finances:

Women need to continue to take an active role in the financial planning process. This includes monitoring daily cash flow and being involved in decisions such as where and how retirement accounts are invested.

Even if one spouse takes the lead in this process, it's important for both to be actively involved. One way to become more a more knowledgeable and confident manager of your money is track the household expenses and income on a money management program such as Intuit's Quicken or Microsoft's Money.

Another strategy is to start or join an investment club where there are regular meetings to review and discuss investment strategies and ideas.