The Financial Challenges of Older Divorced Women
Sep 24, 2015 WEALTH MANAGEMENT
STACY FRANCIS: When it comes to money it is better to be widowed than divorced.
The high poverty rates of older widows have drawn the attention of policymakers and the media, and have been the focus of much of the research on older women’s economic well-being. However, there is a surprising cohort of women who fare even worse than widows. Older divorced women are more likely to be poor than older widows, and trends suggest that, in the future, a larger share of retired women will be divorced.
According to the Social Security Administration’s Office of Retirement and Disability Policy, women who are divorced have dramatically lower incomes and higher poverty rates than widows and other Social Security beneficiaries. According to the data, around 20% of divorced women aged 65 or older live in poverty, compared with 15% of widowed women. Not a good statistic.
Why is this the case?
Women who are not eligible for Social Security, because they did not have strong work histories, are most at risk. To compound the problem, these women cannot collect on their ex-spouses’ benefit if they were not married for at least 10 years.
The old adage “man as a financial plan” still exists. Many women still rely on their husbands to make the important financial decisions of the household throughout the marriage. These women then find themselves lost when they are forced to do this on their own. Lack of confidence in their financial knowledge then causes them to invest much more conservatively than they should, hamstringing the growth of their portfolio.
Women also spend more time out of the workforce than men. While stay-at-home fatherhood is slowly becoming more of a social fact of life, women are still more likely to take time off from their careers to provide full-time care for their children. Of course, less time spent in the working world translates to lower salaries, which, in turn, affects pension and Social Security benefits.
Even if a woman remains fully engaged in the workforce her entire life, it is common knowledge that women make less money than men. Women, on average, earn only $0.77 for every dollar earned by their male counterparts, according to a survey by the Society of Actuaries and the Women’s Institute for a Secure Retirement, which puts them at an automatic handicap when it comes to savings. Unsurprisingly, this survey also found that women tend to have less savings than men.
What can women do to protect themselves?
There are several actions that women can take to avoid being cash-strapped during retirement, the most essential of which is to begin saving early. If you’re eligible for an employer-sponsored retirement plan, participate, and be sure to take advantage of whatever matching incentives your company offers. Take advantage of catch-up 401(k) or IRA contributions if you’re over the age of 50 and have the means to ramp up your tax-deferred savings. Also ensure that you are invested aggressively enough. Consider a riskier blend of investments to generate a higher return. This will help your portfolio grow faster over time. Finally, educate yourself. Studies show that women who are more educated about their finances have more in savings and invest more aggressively–both essential ingredients for successfully funding those retirement years.
Women shouldn’t wait for a traumatic emotional and financial event such as widowhood or divorce to start thinking about their financial future. Take steps now to avoid facing an uncertain retirement.
Stacy Francis is president and CEO of Francis Financial, a fee-only boutique wealth management and financial planning firm.