Women must cover larger retirement costs with a smaller nest egg. Thinkstock By Eleanor Laise, Senior Editor From Kiplinger's Retirement Report, July 2016 In retirement, women must do more with less. Thanks to a longer life expectancy, the average woman is facing bigger retirement expenses—and she'll have to cover them with a substantially smaller nest egg and Social Security benefits. And that's not all. When it comes to retirement readiness, a study by the education firm Financial Finesse found that a 45-year-old woman needs to save an additional $522,000 by age 65 to cover her expenses. A 45-year-old man faces a gap of just $267,000. (Those are median shortfalls; half of those surveyed needed more, half needed less.)See Also: What Women Need to Know About Money The issue has been in the spotlight as baby boomers enter retirement—but advisers who specialize in working with women say the gravity of the problem isn't fully appreciated. "This is off-the-charts severe," says Manisha Thakor, director of wealth strategies for women at BAM Alliance, a network of financial advisers. "There's a trainwreck happening, and society is saying, 'the train may have some problems.'" The financial-services industry is becoming more focused on women's retirement-savings gap. But the advice sometimes misses the mark. The message that financial firms send to women is "ladies, work harder," says Sallie Krawcheck, a former top Wall Street executive and co-founder of a new online advisory service for women. Women are often told to save more and be less risk-averse in their investments—yet studies show that women are more diligent savers than men, and they achieve the same or better returns while taking on less-risky portfolios. Advertisement Fortunately, there are better solutions than loading up on stocks or skimping on food and medicine. Women can reduce the risk of outliving their assets by maximizing Social Security benefits and locking in guaranteed income from annuities. They can plan ahead for career breaks, minimizing the financial fallout many women suffer when they take time away from work to care for loved ones. And many could benefit from finding an adviser who understands their unique challenges. These challenges can be especially daunting for older women. The average Social Security benefit for women 65 and older is less than $14,000 per year, compared with $18,000 for men, and women are less likely than men to have guaranteed income from a defined-benefit pension plan. Women 65 and older are 80% more likely than men to be living in poverty, according to the National Institute on Retirement Security Smart steps for caregivers Working as long as possible is one of the most effective ways for women to close the retirement gap. But women provide about two-thirds of family caregiving, according to AARP, and with limited access to paid leave, many of them quit work to care for relatives. That can cost them not only their paycheck, but also retirement-account contributions, health insurance and Social Security benefits. If you're faced with such a choice, consider other options before leaving your job to care for a loved one. Search Eldercare Locator for adult day-care programs, in-home services and other resources in your area. Advertisement If you need to leave work, don't stop saving for retirement. If you're married, your working spouse can contribute to a "spousal IRA" on your behalf. The contribution limit in 2016 is $6,500 if you're 50 or older ($5,500 for younger savers). Also, try to build up an emergency fund—perhaps a year's worth of living expenses in cash—so you won't have to dip into retirement savings to make ends meet, says Judith Ward, senior financial planner at T. Rowe price. Nearly 70% of family caregivers older than 40 have used their own money to help care for a loved one, according to AARP. Go to BenefitsCheckup.org to find programs that may help pay for medications, health care and food. Also, don't hesitate to ask whether your relatives might be able to pay you as an independent contractor for your caregiving services. That way, you're eligible to contribute to a simplified employee pension plan, or SEP IRA. (This year, you can contribute the lesser of $53,000 or 25% of your compensation.) If you go this route, avoid family misunderstandings by preparing a personal care agreement outlining how much you'll be paid, how much care you'll provide and other details. The person receiving care may qualify for Medicaid or other state programs that can help pay a family member for caregiving. The National Resource Center for Participant-Directed Services provides a map of state programs. Advertisement See Also: 9 Smart Retirement Strategies for Women Find a trusted adviser Many women have a troubled relationship with their financial adviser—or no adviser at all. Only one out of five women feels the financial-services industry understands her needs, according to a recent study by Prudential Financial. Among women's concerns: Advisers cost too much and use too much jargon, and it's not always clear they're looking out for their clients' best interests. New online advisory firms tailored for women are seeking to capitalize on this disconnect. Krawcheck's Ellevest, for example, makes retirement projections based on women's longer life expectancy and unique salary curve. While a man's salary tends to peak in his sixties, a woman without an advanced degree typically sees her salary peak in her forties, Krawcheck says. Many online retirement calculators assume your salary steadily increases each year until retirement. Other new advisory services aimed at women include SheCapital and WorthFM. But the gender-specific advice can come at a cost: Ellevest, for example, charges 0.5% of assets under management each year, whereas major robo-adviser competitors such as Betterment charge 0.35% or less. Advertisement If you're seeking a human adviser, interview at least three candidates and get references from female clients. Ask if the adviser works with women who have net worth and life circumstances similar to yours, says Kathleen Burns Kingsbury, a wealth psychology expert. If you want to work with someone who is required to put your interests first, seek out an adviser who is registered with the Securities and Exchange Commission or your state securities regulator. Check the adviser's background at adviserinfo.sec.gov. Plan for a longer lifespan Lisa Schweig, of Cambridge, Mass., is anxiously planning for a very long retirement. Schweig, 53, stopped working nearly 20 years ago to care for her young children. And her wife, now 59, "very much wants to retire now," Schweig says. But "it makes me nervous," she says, not knowing if they've saved enough. Both have some longevity in their families, and Schweig says she figures that they should take just 2% annual withdrawals from their nest egg to reduce the risk of outliving their money. That really wouldn't be enough to live on, she says, but "you don't know how long you're going to live and what the market is going to do." One way to tame those risks: Calculate the gap between your basic living expenses and your guaranteed sources of income, including Social Security and pensions. Then invest just enough in an annuity to generate guaranteed income to fill that gap. With a deferred income annuity, you invest a lump sum when you're in your fifties or sixties and receive a guaranteed income stream that starts perhaps 10 or 20 years down the road. That way, you can focus on making the rest of your savings last for that 10 or 20 years—not for an uncertain lifetime. A new twist on the deferred income annuity is the qualified longevity annuity contract, or QLAC, which lets you invest up to $125,000 of your 401(k) or IRA in the annuity and postpone payouts until as late as age 85. The QLAC lets you ignore the invested amount when calculating required minimum distributions after you turn 70 1/2. See Also: 3 Ways Husbands Can Help Their Wives Build a More Secure Retirement Consider a 65-year-old woman who has $500,000 in a tax-deferred account. She could generate steady annual pretax income of roughly $25,000 by investing $60,000 in a QLAC that will start making payouts when she's 85, says Joe Tomlinson, a financial planner and actuary in Greenville, Maine. She invests the remaining $440,000 in a Treasury bond ladder to provide steady income during the 20 years she's waiting for the QLAC to kick in. The woman could generate even more income—nearly $31,000 annually starting right away—if she invested the whole $500,000 in a single-premium immediate annuity. But she'd be giving up access to that $500,000, which may not be the wisest decision if she doesn't have a lot of other resources, Tomlinson says. If the woman simply leaves her money in the market and follows the "4% rule" for drawing down her portfolio, she'd have just $20,000 to spend in her first year of retirement, adjusted annually for inflation thereafter. And she'd be at the mercy of market swings, with no guarantee that her money will last a lifetime. To compare how much income you might be able to generate with QLACs and immediate annuities, go to go2income.com/qlac and immediateannuities.com. Another safety net to consider: Long-term-care insurance. Women account for two-thirds of all long-term-care benefits paid. But issuers in recent years have recognized this fact and have started charging single women 20% to 40% more than single men. You can trim the cost of this coverage by opting for a shorter benefit period, less inflation protection or a longer waiting period before benefits kick in. A cheaper—though not ideal—alternative: Short-term-care insurance. These policies offer benefits for up to one year. They still offer unisex pricing, "so a single woman has a decided price advantage," says Jesse Slome, executive director of the American Association for Long-Term Care Insurance. But if you wind up needing extended care, these policies may prove inadequate. Maximize Social Security Women who are over 70, as well as those who are divorced or widowed, are likely to get most of their income from Social Security—so it is crucial to maximize these benefits. Yet most women claim early, slashing their monthly benefits. Claiming at 62 locks you into a benefit that's 25% less than you're due at full retirement age (currently 66). If you delay claiming past full retirement age, you'll earn 8% in delayed-retirement credits each year until age 70. On top of that, cost-of-living increases will be added to your benefit while you wait. If you or your spouse claimed Social Security early but have not yet turned 70, there's still time to boost your benefits. After you hit full retirement age, you can voluntarily suspend benefits and earn 8% each year until age 70. In some cases, the real value of this strategy comes in maximizing the survivor benefit for a woman who outlives her husband by many years. See Also: 9 Reasons Women Will Never Retire Consider this example from Social Security Solutions, a firm that helps clients maximize their lifetime benefits: The husband, who is 62 years old, has a full retirement benefit of $2,400, while his 55-year-old wife has not earned any benefits of her own. If both claim benefits at 62, and the husband dies at age 85, the wife winds up with survivor benefits of $1,980, which she collects until her death at age 97. In total, the couple collects about $935,000 from Social Security. But the couple might recognize that the wife is likely to long outlive her husband and rethink their claiming strategy a few years down the road. The husband can suspend his benefits from age 66 to 70. The couple gets no benefits for four years, but when the husband hits 70 his benefit jumps up to $2,416—and the wife will collect that amount after her husband's death. That means that as a widow, she has an additional $436 per month, and cumulatively, the couple collects about $81,600 in additional Social Security benefits. Instead of just focusing on when to start benefits, focus on the end date as well—meaning you must take your life expectancy into account, says William Meyer, managing principal at Social Security Solutions. Slash spending If you find that you're living beyond your means, take a hard look at your housing costs. Cindy Mazzanti, age 65, retired in 2001 feeling financially secure. She had sold a valuable home in Sag Harbor, N.Y., had no debt and assumed that her husband, who is six years younger, would keep working to age 65. But just after she retired, her husband got laid off, and the couple had to dip into their savings. Mazzanti claimed her Social Security benefits early, at age 62, because "we needed the money," she says. And though her husband has found a new job, health problems make it doubtful he'll continue working to age 65. Mazzanti's solution: This year, the couple relocated from upstate New York to Sarasota, Fla. The move will slash their annual living expenses to $35,000, from $45,000, she says. Downsizing is a good step if you see your housing costs heading beyond the boundaries of affordability, says Cindy Hounsell, president of the Women's Institute for a Secure Retirement. If you own your home and would like to "age in place," a reverse mortgage allows you to borrow against your home equity, withdrawing cash that can help cover living expenses. Last year, nearly 40% of borrowers in the government's reverse mortgage program were single women. But these loans come with upfront costs, and you'll have to repay the loan if you move out of your home (see "Reverse Mortgages Continue to Evolve"). Another option: shared housing. Perhaps three or four of your friends could buy a house together and share expenses, Hounsell says. If your friends aren't roommate material, go to the National Shared Housing Resource Center to find programs in your state that help match up people seeking shared living arrangements.