Living Longer May Not Be All Good News For Women

November 05, 2014

According to a new report by the Centers for Disease Control and Prevention’s National Center for Health Statistics, Americans are living longer—o.1 years longer to be exact—as the national life expectancy has reached a new record high of 78.8 years. Women, with an average life expectancy of 81.2 years, live on average 4.8 years longer than men, at 76.4 years. While some may see this purely as a blessing, it does present a financial challenge for today’s women. Namely, women may need to save more for retirement than men in order to account for these additional years. Here are five things women can do to help address this added financial challenge:

1. Contribute more to a 401(k) plan

According to a Wells Fargo report from earlier this year, only 39% of women are saving in their 401(k) plan at the minimum target rate of 10%. This is despite the fact that they may need more money to cover a longer time in retirement. That may be why only 14% of women who have completed our financial wellness assessment in the third quarter feel confident they are on track for retirement.

Women, more than men, need to beef up their contributions. For 2014, employees may contribute up to $17,500 (plus another $5,500 if age 50+) to their 401(k). In addition, they may contribute up to $5,500 (plus another $1,000 if age 50+) to an IRA.

2. Contribute more to a Health Savings Account

In a study conducted by Fidelity Benefits Consulting, a 65-year-old couple retiring this year will need an average of $220,000 to cover medical expenses throughout retirement. If we assume those costs are shared equally between spouses, that means women will need about $110,000 of savings in retirement just to cover medical expenses—and that doesn’t even cover nursing home care. But given their longer life spans, they may need more.

To help save money tax-free for future medical expenses, women with access to a high-deductible health plan can contribute up to $3,300 for self-only coverage and up to $6,550 for family coverage to a health savings account (HSA). Since contributions to an HSA are not required to be spend each year, this account can grow until retirement, when medical expenditures are typically higher. They can also be used for any purpose without penalty after age 65 to help supplement retirement income.

3. Delay collecting pension and/or Social Security benefits

Most pension plans take the age of the participant into consideration when determining the value of the benefit so waiting longer to begin collecting the benefit will typically result in a higher amount. Similarly, women may want to defer collecting Social Security benefits all the way until age 70 since for every year they delay collecting a benefit beyond their full retirement age (FRA), the benefit increases by approximately 8%. Women who are married (or previously married for at least 10 years) may also be able to collect a spousal benefit while deferring their retirement benefit, thus maximizing the amount they collect over their lifetime.

4. Purchase a life annuity

In its simplest form, a life annuity is a guaranteed income for the rest of an annuitant’s life. Since the income is based on life expectancy, annuitants with a longer-than-average life expectancy stand to benefit more from an annuity. This also may be of particular interest to women since like Social Security, it is a benefit they cannot outlive.

5. Purchase long-term care (LTC) insurance

In addition to the retirement medical expenses mentioned earlier, women face higher costs associated with long-term care. According to the Journal of Health Care Organization, Provision, and Financing, 79% of women turning 65 years of age will need some form of long-term care, compared to 58% of men. Also, according to the U.S. Department of Health and Human Services, women typically receive care for a longer duration: 3.7 years compared to 2.2 years for men. When you consider the average cost of a private room in a nursing home is $240 a day (in today’s dollars), you can begin to see why long-term care insurance may be an important part of a woman’s retirement plan.

It’s no surprise that women on average live longer than men. Unfortunately, it should also be of no surprise that women face more challenges when it comes to planning for retirement. If you’re a woman, consider doing the things mentioned above to help make your retirement years less stressful and more enjoyable.