3 Financial Hurdles Coming Up for Women: How to Overcome Them, From a Financial Planner
From the widow's penalty to higher health care costs, women will encounter a host of money worries over the course of a lifetime — and that requires a robust financial plan.
Are you worried about money? You're not alone. A recent survey by Intuit suggests that most Americans are anxious about their finances. But it's fair to say these worries can be even more pronounced for women.
Analysis from the Pew Research Center confirms that despite moves toward economic equality over the last few decades, women today are still paid less than men. And there are other unique hurdles that many women have to overcome.
Women live longer
More than 11,000 Baby Boomers are turning 65 every day, and about half of them are women. On average, women will outlive men by five years.
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However, a recent survey revealed that only 70% of women say they have confidence in their retirement planning abilities.
If you're married and usually defer to your partner on financial matters, it's vital that you become familiar with your household's financial plan and make sure it meets your needs.
This plan has to support your longevity and give you confidence. If your partner has made a financial plan that you later find to be inadequate, it can spiral into a full-blown crisis.
Tax bracket changes for widows
A loved one's death is difficult for everyone, but becoming the surviving spouse can have significant financial implications, particularly for your taxes.
A grieving spouse can be hit with a sizable tax bomb because of a smaller standard deduction and being pushed into a lower tax bracket. This is commonly called the widow's penalty.
Your tax bracket determines the percentage of your income you will pay towards your taxes, all based on your earnings. Tax bracket limits are higher for married couples who file jointly than for single filers.
For example, if a married couple makes $50,000, that puts them in the 12% tax bracket. But a single person making that much would pay 22%.
A retired couple can have a very comfortable income from Social Security earnings and their retirement accounts, often landing them in the 12% bracket.
However, if one of them passes away, the surviving spouse usually doesn't have enough income to stay in that bracket.
If you are concerned about your tax situation after you or your spouse passes, there are things you can do now to help avoid paying the widow's penalty. One way to mitigate it is by converting your tax-deferred retirement accounts, such as 401(k)s or IRAs, to Roths.
When you convert these accounts, you will pay income taxes on their value, but after that, they are tax-free.
Roth retirement accounts don't have required minimum distributions (RMDs), which means if you don't need the money, you don't have to take it as income.
If you convert your accounts to Roths while you're still married and filing jointly, you will likely pay less in taxes now than you would potentially have to pay down the road if tax rates increase.
While these steps could be a great move for you, everyone's situation is different, so it is important to consult a trusted financial adviser to determine the best strategy.
Higher health care and long-term care costs
Because women typically live longer than men, their health care costs will be higher as well, and the numbers are alarming. Overall, women spend $15.4 billion more than men on out-of-pocket health care costs every year.
These higher costs are due to more than just extended life expectancy. They also have a lifetime of gynecological care, which can be very expensive, especially during childbearing years.
As women get older, the chances of them needing long-term care will also increase. Today's 65-year-olds have a 70% chance of needing long-term care in the future.
This is why I recommend looking into long-term care insurance, as this can help cover the costs of nursing home care and in-home health care, which aren't covered by Medicare.
It can also help families pay for chronic medical conditions, such as Alzheimer's.
A long-term care insurance policy can help alleviate some of the financial, emotional and physical burden of paying for your future medical needs. Planning for long-term care and medical expenses in retirement is often overlooked, but it's a critical component of any retirement plan.
What can women do now?
While the financial future for women can be daunting, there are things you can do to ease your worries.
Start with a budget and make sure that you have more money coming in than going out. If you find that is not the case, look at places you can cut back.
The income you have left over should be going to your emergency fund or retirement account.
One of the most powerful ways to boost your financial confidence and increase your financial success is to find mentors and resources to help boost your financial literacy.
Meet with a financial professional who can provide you with valuable knowledge and help create a customized plan that prioritizes your goals.
Related Content
- Widow's Penalty: Three Ways to Protect Your Finances
- Six Ways Women Can Overcome Any Financial Obstacles Holding Them Back
- My Four Pieces of Advice for Women Anxious About Handling Money
- Worried About Your Retirement Income? Four Questions to Ask Yourself, From a Financial Planner
- Three Ways to Prepare for Long-Term Care Expenses in Retirement
