WISER on Retirement

Women's Institute For A Secure Retirement (WISER), a nonprofit organization under the Heinz umbrella, recently published the monograph What Women Need To Know About Retirement.

Women And Retirement: The Backstory
Retirement income has in the past been described as a "three-legged stool" with "legs" made up of Social Security, employer-sponsored retirement programs like private pensions or 401(k)'s or 403(b)'s, and individual savings. This model is becoming increasingly irrelevant to all Americans, but is particularly inadequate when it comes to women. With the risks faced by Social Security and the fact that employer-sponsored retirement programs are frequently not available in lower-paying or sporadic work, the only "leg" available to many is their own private savings.

But in addition to these challenges, women face particular difficulties financing their retirement on personal savings alone. The persistent wage gap means that women earn 77 cents for every dollar earned by a man. Due in large part to caregiving responsibilities that men are not asked to fulfill, women spend less time in the full-time work force and miss out on promotions and work experience in the meantime. They are more likely to work part-time than men are, and the average woman's total working life lasts 27 years, compared with 40 years for the average man. Yet on average women live longer than men, so their lesser earnings and savings must last them longer. Consequently, women's income in retirement is less than men's, and the rate of retired women living in poverty exceeds 20% for white women, and is over 40% for Black and Latina women.

So it's an uphill battle with daunting odds. Where to start?

A number of the chapters focus on government programs that are likely to change significantly over the next thirty to forty years. For those who are still a ways away from retirement, I wouldn't recommend doing much more than skimming chapters 4 (on Social Security) and 5 (on Medicaid and Medigap and long-term care insurance), since many aspects of those programs will almost certainly be quite different than they are now. It's worth it to understand how Social Security benefits are calculated, since that calculation tends to screw women pretty dramatically, and we might want to therefore plan around it. But Social Security is not a stable enough program to be a source of income I am counting on in retirement. If it's still around and I'm still eligible, it will be gravy. And while I expect Medicaid will last in one form or another until I am all wrinkles in my purple dress and red hat, I suspect it will only barely resemble the mishmash of programs we have now.

Chapter 3 is basically Investing 101, covering a lot of ground, but not in enough depth to be very useful to anyone who hopes to take action. Better coverage of investment how-tos can be found elsewhere.

There are, though, a few chapters worth highlighting out of this 78-page collection, covering ground such as how to budget in the present to protect your future, a brief summary of different vehicles that can provide income in retirement, and a short treatment of what to do if things go terribly wrong.

Chapter 2: Budgeting Now for Future Security is written by Elizabeth Warren and Amelia Warren Tyagi, authors of The Two-Income Trap: Why Middle Class Parents Are Going Broke and All Your Worth: The Ultimate Lifetime Money Plan. The chapter basically condenses the plan they describe in All Your Worth into seven pages. (The Simple Dollar provides a more in-depth review of the book here).

First, get a handle on your must-have expenses (mortgage, health care, utilities, daycare, basic food, minimum debt payments) so that they take up less than 50% of your monthly income. If you can't do that, cut your costs. And if you still can't make it down to 50%, get as close as you can, because 65% of your income spent before you have it is better than 70% is better than 75%. Second, pay off your debts by not taking on any new debt and by paying off all your existing debts, one by one. Warren and Warren Tyagi say to exclude mortgages, student loans, and car loans in this steps. Debt repayment and savings, addressed in section 3, should take 20% of your monthly income. Third, save three months' pay for an emergency, and fourth, pay off your home by chipping away at that debt.

The authors don't address retirement savings until step 5. They say only after your consumer debts are paid off and your emergency money is stashed should you invest for retirement by putting 10% of your monthly income in a workplace plan or an IRA (note: they don't specify a Roth IRA, which seems like a big oversight).

Chapter 6: Retirement Income covers different vehicles that can provides income in retirement--Social Security and Medicare, pensions, 401(k)'s and 403(b)'s, IRAs and Roth IRAs, regular investments--and looks at how they can work together to provide for you in retirement. It briefly covers how to make wise choices with the vehicles available to you, such as delaying retirement to maximize the benefits available under a pension or Social Security. There are several examples of couples using different combinations of vehicles for their retirements, and the chart on page 54 and 55 describes the advantages, disadvantages, and tax treatment of each vehicle as wells as penalties for late or early withdrawal.

Chapter 7: Planning for the Worst is premised on the idea that "good planning can help to prevent a personal tragedy from becoming a financial disaster." It provides a list of steps women can take before disaster strikes (that's now, my friends) to protect themselves financially:

Keep copies of important financial documents and records, and keep them organized. This includes account numbers, brokerage information, wills and prenups, house deed and mortgage documents, and safe deposit box info.

Have both joint and separate checking accounts. If all the accounts are in your spouse's name, it can be hard to do things like make sure the mortgage is still getting paid, because it can be a hassle to get access to that account and continue the payments yourself. Having your own, solely owned account is wise, though, so that you have access to your own funds if, say, the will is contested and your spouse's assets are frozen.

Establish and maintain good credit in your own name. If all your credit is in your spouse's name, you will be in dire straights in the event of widowhood or divorce. Should you need to refinance your mortgage or take out student loans for job training or open your own credit card, you'll have to find a cosigner or go without altogether. Monitor your credit reports to make sure they are accurate.

Buy the insurance you need, including home insurance, health insurance, disability insurance, life insurance, and car insurance. By the way, stay-at-home parents should investigate whether life insurance makes sense for them. Just because they're not drawing a wage doesn't mean their families don't need it. If the SAHP dies, would the family need to start paying for daycare? A housekeeper? Could they afford those expenses on the wage earner's salary? If not, get life insurance.

Get a will! I mean it. Especially if you have kids.

The chapter also has a list of financial considerations for women facing divorce or widowhood, unemployment, or medical emergencies.

What's Missing?
I feel like I'm going to say this a lot over the pages of this blog: This is good advice for anyone, but it's especially vital for women. Because we earn less money over less time and have to make it last for longer, a financial mistake made by a woman could jeopardize her future more dramatically than that same mistake could affect a man. And by "jeopardize her future" I mean "push her under water."

What's missing from this report is any analysis how to fix this disparity. Why do women earn less? Why do we carry the bulk of the non-paid caregiving duties? Surely not because we are better people or because we have no use for the money we forego. Neither of those describes me, at any rate. By asking how we fix it, I don't just mean at a political or social level, though those are certainly important aspects, since a lot of this difference in financial security is a result of cultural forces.

I mean that it is worth making explicit that when women take time out of the full-time paid work force to raise their children or to care for aging parents or in-laws, they are going to take a financial hit for it in ways that aren't intuitively obvious. The women making these choices and their partners need to fully understand the long-term ramifications of these choices. Not only do these women not draw a paycheck during periods of leave, but they don't get raises or promotions during that time. They don't get employer matches in their retirement accounts. Part-time workers may not be eligible to contribute to a 401(k), either, or may not be eligible for a match. They may not be re-hired or re-integrated to full-time at the same level of responsibility or seniority if and when they try to come back full time. They will deflate any Social Security benefits they might be eligible for having several years of no or low pay factored into their benefit calculations. These impacts are very real. Are they worth it?

If staying at home with the kids is what a woman ultimately decides to do, there are ways to mediate the long-term financial hit: spousal IRAs, or spousal deposits into taxable investment accounts solely in the stay-at-home parent's name. Families need to talk about the full range of impacts before making these choices, and decide how they are going to share these burdens. That's right, I said share.

This is not about Mommy Wars. This is about wanting every woman to safeguard her own future by making considered choices now. These financial impacts deserve thoughtful discussion ahead of time, both in terms of deciding whether taking the hit is worth it and in terms of taking action to mitigate it. If we're not seeing these important conversations modeled in the financial literature, how can we expect it to be on a woman's radar for consideration? The WISER monograph provides good basic info and good advice, but it doesn't go deep enough into those considerations that most uniquely affect women.