Unraveling Retirement: A Woman's Wealth Dilemma
When it comes to retirement, timing can be crucial, especially for women. Studies indicate that the ideal retirement age for women tends to skew later than for their male counterparts. Thus, women opting to retire at the same time as their spouses might inadvertently be sacrificing significant financial assets.
The Earnings Spectrum: A Closer Look
According to economist Nicole Maestas from Harvard Medical School, married women often find themselves in the peak phase of their careers during their 50s and early 60s, while their husbands may begin to see a downward trend in earnings. This intriguing contrast sheds light on the economic challenges women face when they choose early retirement.
The Hidden Cost of Early Retirement
Maestas' research, which analyzed data from over 20,000 individuals aged 50 and older, reveals that married women tend to forfeit more Social Security benefits than men when they retire early. This discrepancy arises because Social Security benefits are calculated based on an individual's top 35 earning years. Therefore, each additional year a married woman works can help replace an earlier lower income year, such as those spent raising children. Men, who are generally past their optimal earning years upon retirement, don’t have the same opportunity to enhance their benefits.
The Trends of Timing: How Marital Age Differences Play a Role
Interestingly, many women retire alongside their husbands. Given that women often marry older men by two to three years, this results in married women exiting the workforce at comparatively younger ages. Unfortunately, this early exit can lead to financial implications that last for decades.
Considerations for the Golden Years
Jean Setzfand, senior vice president of programs for AARP, emphasizes that women's longer lifespans warrant careful financial planning. "We tend to live longer and thus need to plan for more years in retirement," she explains. This portrait reveals that women are statistically more likely to outlive their husbands, leading to a heightened risk of financial insecurity in their later years. Alarmingly, women face an 80% higher likelihood than men of living in poverty post-65, according to findings from the National Institute on Retirement Security.
The Security of Social Security
If sufficient, Social Security checks can provide a crucial safety net against poverty in later life. These benefits can't be outlived, nor are they vulnerable to market fluctuations or fraud, a fact underscored by Maestas.
The Challenge of Early Claims
Despite the importance of timing in retirement planning, many individuals choose to retire at 62—the earliest age to claim Social Security. In 2017, this was the choice of 39% of women and 35% of men. Unfortunately, this decision often locks them into smaller benefit amounts that could have been significantly larger had they delayed their claims for just a few years.
The Value of Patience: Maximizing Benefits
Benefits increase by approximately 7% for each year retirement is postponed between ages 62 and 66, and continue to grow until they reach their maximum at age 70. A monthly benefit of $1,000 claimed at 62 could soar to over $1,700 by age 70, adding substantial financial cushioning for retirement.
Navigating the Emotional Landscape of Retirement
While financial considerations are paramount, they are not the only factor influencing the decision to retire. Couples need to weigh the emotional and psychological implications of choosing to retire together or separately. According to certified financial planner Stephanie Mushna, embarking on this new journey can be exhilarating, making it essential for couples to communicate about their desires and concerns.
A Road Less Stressful: Alternative Pathways
For those struggling with the prospect of retirement, taking on lower-stress roles or part-time positions might be a viable solution. Instead of constantly traveling with a retired spouse, women can opt for occasional extended vacations, creating a balance that accommodates both partners' lifestyles.
The Reality of Workplace Flexibility
However, finding flexible job options can be challenging, particularly for women who heavily rely on Social Security. Various factors—ranging from health issues to caregiving responsibilities—can force women into early retirement more quickly than they anticipated.
The Call to Action: Starting Important Conversations
While Maestas acknowledges that not every married woman will want or be able to continue working, she hopes her research encourages couples to explore their retirement options together. "Delaying Social Security claims often makes financial sense," she advises, stressing the importance of individualized planning when it comes to retirement decisions.
