It's Different for Women: Part 2
By Maria Motsinger and David Cantor
In the first part of this article, we discussed how women have challenges that are different from men when it comes to building wealth.
In summary, we:
- Examined ways institutionalized sexism leads to higher poverty rates for women of all ages relative to men, with particular emphasis on old-age poverty.
- Looked at the critical importance of investing as a way for women to build a comfortable retirement.
- Recommended using socially responsible (or “ESG”) mutual funds to help correct these inequities by harnessing the power of shareholder votes to change corporate employment policies.
- Encouraged women to consider adopting different investment time horizons compared to men because of their longer life expectancies.
The following strategies may also be helpful:
Spousal IRA
Women who stop full-time work for any period before reaching retirement age (such as to care for a child or an aging parent) face two additional financial issues: lower lifetime earnings and reduced retirement savings.
However, if you’re married you may be able to continue contributing to your retirement savings account through a spousal IRA, which allows your spouse (if they are working) to contribute to an IRA held in your name. Besides being able to continue to build retirement savings, these contributions can also provide significant tax benefits.
Health Savings Accounts
On average, women ages 18-44 spend $1,170 more on out-of-pocket health care per year than men do. Almost 70% of women aged 75 or older are widowed, divorced, or never married, compared to about 30% of older men. This translates into women needing more paid long-term care than men do.
One solution? Health Savings Accounts.
HSAs were created to be used alongside High Deductible Health Plans (HDHPs). (For 2021, the IRS defines a high deductible health plan as any insurance plan with a deductible of at least $1,400 for an individual or $2,800 for a family). HSAs allow you to save and invest money to be used for medical expenses, including deductibles, co-insurance, prescriptions, vision expenses, and dental care.
Unused balances are carried over to the following year, funds never expire, and they can be passed on to a surviving beneficiary. In addition, HSAs are “triple tax-advantaged”, meaning that they are funded with pre-tax dollars, they grow tax-free, and withdrawals are not taxed if they are spent on qualified medical expenses
Claiming Social Security – Strategies to Maximize Your Benefits
To receive social security benefits after age 62, one must meet a minimum number of 40 quarters (ten years) of contributions. For women who have not contributed to social security consistently throughout their careers, it’s important to have a plan to catch up.
Fortunately, no time or age limit is in place on collecting credits. No matter how long it takes or how old you are, you will qualify for retirement benefits if you reach 40 credits. Working past age 62 and delaying taking social security may allow you to catch up.
Once you’ve met the credit requirement, you can maximize your monthly benefit by delaying taking social security for a few years after you are eligible. For every month that you delay claiming benefits beyond your full retirement age (66 or 67 depending on your birth year) up to the age of 70, your benefit increases by 8%. If your full retirement age is 66 and you wait till age 70 to begin taking benefits, your monthly payout will be 32% higher for the rest of your life. This is especially relevant for women, whose longer life expectancy means they are more likely to benefit over time from the higher payout.
If you’re married, the higher-earning spouse should delay claiming benefits as long as possible In order to maximize lifetime social security benefits over both partners’ lives.
If you want to retire but choose to delay taking benefits, withdrawals from an investment account may help to bridge the gap until you begin claiming social security.
The Bottom Line
Contributing to personal retirement accounts (IRAs), employee retirement plans (401k or 403b), and Health Savings Accounts, are tax-advantaged ways of building your savings. Taking a strategic approach to social security contributions can ensure that you qualify for and can increase your long-term benefits. Combined with a diversified investment portfolio, these strategies can help offset some of the financial challenges women face and make it easier to enjoy your retirement years free of money worries.
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