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Extra Life – Can Women Afford It?
July 30, 2021
People are living longer. This is generally a good thing. But how does this affect us financially? Can we afford it? Nowadays, people could be living in retirement for 40 years or more. That is a substantial amount of time to save up for. Increased longevity requires new thinking and needs to factor in everyone’s personal financial circumstances and capabilities. This is especially true for women. On average, women live five years longer than men. In fact, 81% of centenarians are women. 81%! In essence, managing longevity has become a fundamental women’s issue, but one that is impacted by various challenges too. There are a few key elements that women in particular face as it pertains to financially sound longevity:
Cost of Care – Paradoxically, although women have lower mortality rates, they have higher overall rates of physical illness than men. According to a study done by the Kaiser Family Foundation and in partnership with the Journal of the American Medical Association, women spend significantly more on annual health care than men. And this is true for both pre- and post-retirement phases. Due to longer life expectancy, women are also inherently more at risk for many chronic diseases. Finally, women tend to delay care, and this can often result in higher costs down the road.
The Wealth Gap – According to 2019 Census Bureau data, women of all races earned—on average—just 82 cents for every dollar earned by men of all races. This gap then accumulates and compounds over time. Compounding this disparity further, an average woman spends about 45% (or almost half) of her adult life out of the workforce compared to 28% for a man. Work disruptions and unavoidable interruptions—often triggered by the need to care for children, parents, and spouses—adversely affect a woman’s potential earnings over her lifetime. This was recently highlighted during the Covid pandemic. Age Wave calculations based on Bureau of Labor Statistics determined that when an average woman reaches retirement age, she may have earned a cumulative $1,055,000 less than a man who has stayed continuously in the workforce. That is a meaningful differential. Social Security payments can also be affected by time spent out of the workforce. That calculation is based on a person’s 35 highest-earning years, and women are twice as likely as men to have at least one zero-earning year as part of that calculation.
Ultimately, it’s important that these subjects are brought up and get discussed at the proverbial dinner table. Women discussing wealth—and related financial planning considerations—should not be taboo, as it often was in the past. Women need to have the confidence to ask the many important financial questions that help set them on a path to achieving financial success and independence. For example, without such knowledge and confidence, women tend to invest less than their male counterparts. The opportunity cost of missing out on just average market compounded returns is a big lifelong risk, and one that becomes more magnified as we rely on those assets to support us as we age.
Given the combined wealth gap and increased longevity, it is important that women make comprehensive—and long term—financial plans. There is power in acknowledging the financial challenges impacting women. While great strides have already been made in recent years in terms of wealth equality, there is still work to be done. And much can be done on the individual level too. Being prepared for the unexpected can make those financial goals a reality and something to celebrate. Make a plan. Do it as early as possible and update it often. And even if the conversation hasn’t occurred yet, it’s not too late.
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