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Low on savings, short on time: older women facing retirement challenges

"If I had put away even $100 a month 25 years ago, by this time my retirement (savings) would have been enough."
Credit: Henfaes
A woman checking her purse for cash.

Victoria Nelson, 54, is a registered nurse in Lawrenceville, Ga. As she plans for retirement, Nelson worries about her two thin retirement accounts that total about $51,500.

Although Nelson made a quite handsome salary when she was younger, she didn't save because she spent about 25 years putting almost everything toward taking care of her three children, now all grown. She only started putting away money in 2006, but the financial crisis and recession wiped out all her investment earnings. She's trying to catch up, but Nelson also has student loan debt and a mortgage, not to mention the costs of caring for her aging father. Nelson said she regrets not starting to save earlier.

"If I had put away even $100 a month 25 years ago, by this time my retirement (savings) would have been enough," she said.

Nelson's story is many older women's story: They didn't or couldn't save much when they were young, and when they reach 50 or 60, they worry about not saving enough for retirement, while grappling with debt and caretaking tasks.

Studies have shown that older women are face severe economic hardships. Women ages 65 or older are 80% more likely than men of the same age to be in poverty, a 2016 National Institute on Retirement Security (NIRS) study found.

This is because women in general earn less than men throughout their careers, and they are more likely to take time off from their career to care for children and elderly family members, experts interviewed by MagnifyMoney say. That means they are likely have even less savings and Social Security benefits in retirement.

Knowing that they may be in a greater need for health care and live five years longer than men, many women fear they will outlive their savings. As a result, they tend to work longer to make up for the missed savings throughout their career and investment loss following the financial crisis, experts say.

Labor force participation among women ages 55 to 64 increased to 59% in 2015 from 53% in 2000, peaking at 61% in 2010, according to the NIRS study.

Nelson, for example, went back to work just a few weeks ago after staying home since 2011, when she was diagnosed with a brain aneurysm. To financially stabilize herself after she got sick, she had to dip into one of her retirement accounts, which came with a hefty 20% penalty, plus taxes.

Nelson now works night shifts and has a day job of visiting patients at home to make extra money.

"[Women] understand the value of continuing to earn an income as a pillar of their retirement," said Kerry Hannon, expert on retirement and author of "Money Confidence: Really Smart Financial Moves for Newly Single Women."

"And if they are single, seriously, the longer they can keep working, the better."

While working so much is the financially smart move, it can be exhausting. Nelson doesn't get much rest.

"I don't have a choice," she said, laughing.

Among the older female population, those more likely at financial risk are single women - divorced, widowed and never married - and women of color, according to experts.

Stretching savings after retirement

Experts suggest that, in general, women should save 70% to 80% of their preretirement earnings to live comfortably in their later years. But, Francis said on the conservative end, she would recommend women try to reach 100%. The reason is that although some expenses will go down after retirement, such as commuting and work clothing, other areas of life may need more money, namely health care, which could be completely unpredictable and astronomically expensive.

But even on the low end, those savings goals can feel out of reach for women within a decade or two of retirement. The Schwartz Center for Economic Policy Analysis at The New School gathered a few calculators that can help you estimate how much you need to save for retirement based on your personal information. They are Target Your Retirement by the Center for Retirement Research at Boston College; the AARP Retirement Calculator; Retirement Nestegg Calculator by Dinkytown.net; and New Retirement.

While certainly a challenge, it's not impossible for late savers to prepare for a financially secure future. We asked experts how to do it, and here's their advice:

Delay Social Security benefits until age 70

Although it's tempting to start collecting Social Security at age 62, experts suggest women who can still work and are healthy wait longer. Because for every year you don't collect Social Security after your full retirement age, which varies depending on your actual age, your benefit goes up 8%, until you reach 70.

"Social Security is even more important for women [than for men] because we live longer, we are likely collecting longer," said Stacy Francis, certified financial planner and founder of Francis Financial, a firm that frequently works with women around retirement. "It makes [more] sense for you to wait for that bigger benefit at age 70, and then collect it for the next 25 years, than collecting at age 65 that smaller benefit and collecting it for a longer period of time."

Take advantage of catch-up contribution

Nelson plans to retire at 65, or 70 at the latest, if her health condition allows. To catch up with savings, she now contributes 13% of her salary to her newly built retirement account, and her employer contributes at 7.5%.

Experts say the simplest thing for women to bump up savings for retirement is to take advantage of the IRS catch-up contribution. If you are age 50 and over, the IRS allows you to save $6,000 more on top of the $18,500 annual contribution limit in your 401(k). For individual IRAs, the catch-up amount is $6,500.

Invest more aggressively if you saved too little in the past

"Being too conservative in your investment can actually put you in a greater financial risk because us women we have a longer life expectancy," Francis said, "as well as how many of us unfortunately are coming to retirement with not necessarily enough saved."

Equities are the true engine of a portfolio, and women shouldn't be afraid of it, Francis said. She suggests for women not on track with their retirement savings to invest more in stock if they have the risk tolerance.

A good rule of thumb for stock-bond ratio is to subtract your age from 120 (or 110) as a starting point to calculate your stock asset exposure, experts say. For example, if you are 65 years old, your stocks-to-bonds ratio should be 55:45, or 45:55.

Maria Bruno, senior investment analyst at the Vanguard Investment Group, told MagnifyMoney that for people in retirement, a ratio of 60:40 stocks to bonds is considered a balanced allocation for them.

"If God forbid she's really behind, it could even be 30% of bonds," Francis said.

Think of yourself first, not last

Nelson has always been the breadwinner at home, even before she separated from her husband in 2012. For a long time, she had to juggle multiple jobs so she could take care of her children, which involved paying $1,000 a month for child care. She regrets not saving for retirement earlier, but she also felt like she didn't really have a choice.

"Because [the] mistake we make is that we think, 'Oh, I need to pay child care. I need to do this and that for the kids,'" Nelson said. "But then you don't think about [yourself]. You put your retirement last."

Women are natural nurturers, Hannon said, so they have an instinct to give. For example, experts say it's common for women to take money out of their savings to help kids with school.

"Kids can get loans for college and you can't get a loan for your retirement," Hannon said.

While women may not be able to replace the money they gave to others instead of themselves in their early years, they can still protect their future by putting themselves first now. Of course, that's easier said than done. Putting yourself first is rarely as simple as cutting off support for adult children.

Nelson's 86-year-old father needs care around the clock. She chips in $1,000 a month to hire caretakers for him. Still, she does this while working toward her own financial goals. She just doubled on her mortgage payment to about $2,000 a month in the hopes that she won't have to be in housing debt in 10 years. Meanwhile, she is about to start paying off her student loan debt - $52,316 - for a master's degree in nursing she received two years ago, when she was staying at home with disability.

Adjust your lifestyle if you haven't saved enough

Nelson doesn't have much spare money for herself after saving for retirement, paying for her father's caretakers and making debt payments. She cut back on shopping, dining out and going to movie theaters.

"I'm adapting, I'm managing," Nelson said. "I won't say it's hard, because I'm not hungry."

Francis stressed that it's absolutely imperative that women make sure they stay within their budget now so they can afford their needs in the long term.

"If you have not been tracking your spending, guess what? When you retire, there's no option any longer," she said. "The stakes are too high that if you are not being conscious about where your money is going, there is no room for error and there's no ability to make up for overspending in retirement."

Prepare for unpredictable health care costs

All the women interviewed for this story, who are in their 50s, 60s and 70s are concerned about the unpredictable health care costs they will face in the future.

Consider a Health Savings Account

If you have a high-deductible health plan (HDHP), experts suggest you consider a Health Savings Account, which has a triple-tax benefit: The money you put into an HSA is tax-deductible; the balance grows tax-free and rolls over each year; and withdrawals from your HSA for qualified medical expenses are not taxed.

The annual maximum HSA contribution in 2018 is $3,450 for an individual and $6,850 for a family. If you are at least 55 years old, you can contribute an additional $1,000 annually. You can read more about using an HSA as a retirement tool in this guide.

Look into long-term care insurance

Buying long-term care insurance may be another way to prepare. Long-term care insurance is separate from your regular health insurance. It pays out for nursing home, home health care or assisted living and other expenses not covered by regular insurance when you have a chronic medical condition, a disability or a disorder, for two to five years.

Nelson bought a long-term care policy with her previous employer, which cost her about $100 per month. When she was sick and homebound, the policy paid out $8,800 a month. After she started her current job, the policy is still paying her $3,000 a month, which she will stop receiving in a year. Her current job also offers long-term care insurance as part of the benefit package, and Nelson said she plans to buy it as soon as her current coverage ends.

But not every job offers cheaper group insurance. Many people have to buy individual plans.

Francis, the CFP, said she's in her 50s and she bought a long-term care policy when she was in her late 30s. Her family medical history compelled her to go with a premium plan, and while she admits buying the policy in her late 30s was a little early to start paying $3,700 a year for coverage she wouldn't likely need for decades, she knew that buying it later would cost much more. She estimates her premium would be twice as expensive if she bought it today.

Francis said if women have close family members who have significant health issues, it may make sense for them to look at such care policies when they are younger.

On average, a 55-year-old single woman buying new coverage pays $2,965 a year for a long-term care policy that pays out $150 a day for up to three years, or $164,000 in total benefits, according to a 2018 price index from the American Association for Long-Term Care Insurance. A single 60-year-old woman can expect to pay an average of $3,475 a year for the same plan. And the average annual premium is $4,270 for a 65-year-old single woman.

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MagnifyMoney is a price comparison and financial education website, founded by former bankers who use their knowledge of how the system works to help you save money.

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