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Two big challenges facing women in retirement planning

Widespread gender pay inequality, and the prospect of increased longevity, are among the situations women encounter as they plan for their retirements.
Widespread gender pay inequality, and the prospect of increased longevity, are among the situations women encounter as they plan for their retirements. .

When it comes to retirement planning, both men and women worry about having enough income in the future. But women, in general, face two big challenges that can make it more difficult to achieve the goal of a comfortable flow of retirement income.

The first is longevity. In the U.S., women have a longer life expectancy than men. According to the Social Security Administration, a woman turning 65 today can expect to live, on average, until age 86.6, compared with age 84.3 for a man. Since those are averages, about 25 percent of those turning 65 will live past age 90 and about 10 percent will pass age 95.

A longer lifespan means that women should think about a strategy to maintain their retirement income into their 90s to avoid running out of money. While Social Security payments are likely to cover some of those ongoing expenses, women should also look at how to accumulate more savings and investments earlier in life.

Here’s where the second challenge comes into play. Despite a gradual improvement in gender pay equality, women earned about 82 percent of what men made during a similar week of work in 2016, according to the Institute for Women’s Policy Research. The study noted that black women made 60 cents and Hispanics 55 cents for every dollar paid to a white male.

Of course, there are other financial challenges facing women, such as caring for children or an aging parent, or cracking the “glass ceiling” in the workplace. Other risks include divorce or the death or disability of an income-earning spouse or partner. Returning to the workplace after a long absence can be a hardship for a single woman who needs to generate income to pay the monthly bills.

To address these challenges, it is important for women to plan for their financial future relatively early in life. That might include starting a savings account and putting at least a few dollars away from every paycheck.

Another step to consider is cutting back on nonessential household expenses and adding those dollars to a savings or investment account. That’s usually good advice for women (and men) at any age.

It might also be possible to increase contributions to a qualified retirement plan, such as a 401(k), a SEP-IRA or a Roth IRA account. In some cases, an employer might match those contributions, providing an extra boost to those long-term retirement savings.

Other sources of income may become available later in life, such as a parental inheritance or the proceeds from the sale of a business or professional partnership.

Since everyone faces a unique set of personal issues, a financial advisor can provide helpful assistance in developing a strategy for retirement. To take just one example, life and disability insurance policies can help protect against the sudden loss of a spouse’s income.

A financial advisor can also help women construct a diversified portfolio of assets that can provide a solid foundation for retirement. For women in their 30s, 40s and 50s, there might be an emphasis on assets such as stocks, which historically have provided relatively high returns.

As retirement approaches, that balance might shift toward income-producing assets, such as bonds or real estate holdings that also tend to be less volatile than stocks. After all, asset preservation is a major concern for many women who rely on their investment portfolio, plus Social Security, for their retirement income.

In any case, women should take a careful look at their current financial situation, as well as their long-term goals, and start building a plan for the future.

Andrew Menachem, CIMA®, is a Wealth Adviser at The Menachem Group at Morgan Stanley in Aventura. Views expressed are those of the author, not necessarily Morgan Stanley, and are not a solicitation to buy or sell any security. The strategies and/or investments referenced may not be suitable for all investors. Follow Menachem on Twitter @AMenachemMS.