Fong Law Group

He Retires but It Doesn’t Mean You Should

“Women who retire when their husbands do, may be giving up more wealth than they realize.”

Women in their 50s and 60s are in their peak earnings years, while their male counterparts are usually on the decline, according to an associate professor of health care policy at Harvard Medical School. The associate professor is the author of a recent study about couple’s incomes and retirement patterns. As a result, reports The Berkshire Eagle in the article “Women who retire with their husbands can lose out,” women sacrifice more Social Security wealth than married men, when they retire early.

Social Security benefits are based on a worker’s 35 highest earning years, so each additional year a woman works should be considered to replace an earlier year, when she was working for a lower salary, or when she was out of the workplace completely because she was home raising children. This is more often the case for women in their 50s and 60s than it is for men.

What often happens is that these women retire when their husbands do. That takes away two, three or more years of their top earnings potential. Early retirement also poses a threat to women, who live longer and spend more years in retirement.

Women’s longer life expectancies mean they are statistically more likely to outlive their husbands and are at greater risk of outliving their savings. The numbers are worrisome: women are 80% more likely to live in poverty after age 65 than men, according to the National Institute of Retirement Security.

Social Security checks, if they are robust enough, can be a big help to widows. As long as you live you receive them, and they can’t be reduced by market downturns.

What can you do?

Just because you retire doesn’t mean you have to start taking Social Security. Putting off filing for these benefits as long as you can, is often the best way to maintain some kind of cash flow. If you file at age 62, for example, you are missing out on years of possible increases. Benefits rise by about 7% every year from age 62 to full retirement age. After that, checks increase by 8% until you max out at age 70.

It’s not just about the money for working women. Couples must consider the emotional impact of two retirements, rather than staggering them over a period of years. What happens if both of you are suddenly home together, all the time? That’s a big adjustment for a couple.

Have a conversation with your spouse that is about more than just your larger dreams and hopes for this part of your life. How will each of you spend your time, if you both retire? Are you ready to give up both incomes and how will you manage the change? Don’t wait until it’s a done deal: talk it over now.

The start of retirement is usually an exciting time, when couples enjoy having so much time together. The awareness of one’s mortality increases and the sense of making the most of the time that is left becomes very compelling.

Reference: The Berkshire Eagle (Sep. 20, 2018) “Women who retire with their husbands can lose out”

Divorced Women and a Financially Secure Retirement

“For women in particular, divorce is financially perilous—at least, that’s what nearly all the studies tell us.”

This article from Money, “This is The Single Best Way Divorced Women Can Secure a Successful Retirement,” begins by noting the frequently referenced “divorce gap.” This was documented in 2008 by a professor at the University of Essex, who found that women who divorce see their income fall by more than a fifth, while the men they divorced see their household income rise by about a third. A more recent study offers more nuanced scenarios, with a more positive outlook.

A more recent study from the Center for Retirement Research in Boston College found that formerly married, but now divorced women historically are better off than single, never married women because of the assets they have accumulated before divorce. The biggest difference comes from one asset—home ownership—because divorced women are more likely to own a home than singles.

However, home ownership is a double-edged sword, say many divorce lawyers and financial advisors, who find the new data both interesting and unsettling. They say that keeping the house isn’t always the best move. Many newly-single women find they don’t have the resources to keep up with mortgage payments, maintain the property, pay taxes and deal with an unexpected crises.

One advisor says she’s concerned that these new numbers will lead to women who can’t necessarily afford to maintain a home to hang on to their homes.

 However, a researcher involved in the study maintains that while the study mentions homeownership, there’s a bigger point being made. Married women who divorce benefit from receiving a share of marital assets. Single, never-married women do not and must rely solely on themselves for saving and accumulating assets that can be used to finance their retirement.

A critical fact that women who are divorced must do: whatever assets they get in the divorce settlement, commit to keeping those assets intact for retirement. It’s easier to do this with a house. However, it’s tempting to dip into assets that are intended for retirement.

Being house-rich but cash poor is no way to prepare for retirement. Focus on the longer term—if you don’t see yourself living in the house for 10, 20 or 30 years, be realistic. If you think you might want to sell, sell while the market is good. Don’t wait until you’re tapping retirement funds for home maintenance.

Reference: Money (Aug. 10, 2018) “This is The Single Best Way Divorced Women Can Secure a Successful Retirement”