What Every Woman Needs to Know Before Retiring

Four months after Caroline Smythe married her second husband, she got a notice from the Internal Revenue Service. The government was keeping $1,600 of her tax refund because her husband owed back taxes.

When she asked him about it, he blamed his ex-wife for not filing their returns properly. Then, a few months later the IRS put a levy on their joint bank account and froze the funds. Her husband again blamed his ex-wife. But it turns out that withheld taxes weren’t being paid to the IRS. 

After two years of wrangling with the IRS, Smythe, now 64, forked over $50,000 to clean up the debt and clear her name. “There weren’t any bells or signs that he wasn’t financially stable,” she says. “There was no reason for me to think that there was a financial issue; no reason at all for me to think he had an IRS problem.” 

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Poorer, wiser and single again, Smythe’s advice to other women: “Go in with your eyes wide open and always, always keep your accounts separate.”

Know where your finances stand

Not knowing their household’s financial situation is among the biggest missteps many women make when they are in committed relationships. If they suddenly find themselves single, whether through death or divorce, the challenges can be daunting.

Women are more vulnerable than men in their retirement years for several reasons, chief among them that they typically make less than men over their lifetimes.

• Women earn roughly 84 cents for each dollar men earn. That comes to about $900,000 over a lifetime, estimates Ellevest, a woman-led financial group.
• Women have substantially less saved in retirement accounts than men.
• Women tend to live more years in retirement, mostly because they live longer and often retire earlier. As a result, there’s a greater chance of draining other sources of income. 
• Women represent 55% of all Social Security beneficiaries 60 and older, and their percentage rises as the senior population ages. About 63% of Social Security beneficiaries over 85 are women. 
• The highest percentage of divorces involve couples between the ages of 55 and 64.

How work breaks impact retirement planning

Then there’s the caregiving phenomenon. During the pandemic, millions of women lost or left their jobs, in many cases because they needed to care for children, elderly relatives, or both. 

More than 65 million women provided unpaid care for family, children and the elderly in 2020 and 2021, estimates the nonprofit National Partnership of Women & Families. Many were forced to take care of children after schools and day-care centers closed en masse as they worked from home. Given the high susceptibility of the elderly to COVID, many women were also taking care of their parents. Men were as well, but not to the same extent as women.

In 2021, 61% of family caregivers, including the so-called “sandwich caregiver” taking care of both children and parents, were women, says AARP, which estimates that’s an economic value of $600 billion, at minimum wages. Many women also were holding down full- or part-time jobs, facing financial risks that included lost income and fewer career opportunities.

“Why women fall short in retirement to men is about caregiving,” says Christine Benz, director of personal finance and retirement planning at Morningstar, the financial services company.  “Every time I look at this issue, it all comes down to caregiving.” 

Given the stop-and-go periods of their working years, it’s no surprise that 401(k) balances are out of whack for women compared with men.  Average 401(k) account balances among men are 50% greater than for women, or roughly $89,000 compared with women’s $59,000, according to Bank of America’s 2023 Financial Life Benefits Impact Report. The good news is the gender imbalance is closing among Millennials, but that doesn’t help Baby Boomers and Generation Xers now.

Retirement planning helps, but there’s still plenty to do 

Even Millennials with smart financial planning face challenges of their own. Three days after Eva Lindgren’s husband Mark was diagnosed with an aggressive form of colon cancer in 2019, they reached out to their financial adviser. Having worked with him since 2012, they wanted to ensure all their financial ducks were in order for Eva after Mark died.

They had been married for 15 years, both with successful careers. Mark started as an engineer but decided in his late twenties that medicine was his real calling. As he pursued his medical degree, Eva, now 46, a self-proclaimed planner, began to worry about their finances if he were to get sued as a doctor. That’s when she first contacted a financial adviser. At the time, they were thinking more about mitigating risk than building wealth and estate planning.

Eventually, they added legal and estate planning before investing in stocks and other assets. They had trusts set up for each other and took out life insurance policies. They put together living wills not long before Mark, who spent only two years as a full-fledged doctor, died at age 45. “Having a cushion of money can’t take away the hurt of losing somebody,” says Eva, “but at least you can take it off the list of things that can hurt you more.”

Indeed, a spouse’s death opens a Pandora’s box of financial issues that surviving women, also dealing with what’s called “widow brain,” must contend with. 

“There’s so much to do,” says Eva. “You have to transfer things when you’re fresh into grief and you have widow brain, this mental fog where it’s difficult to concentrate, but you have to power through it.

“You have a few weeks of grief and getting through memorial services. Now let the paper marathon begin,” she adds. 

And it’s a huge mound of trust, bank, investment accounts, credit card transfers, plus debt payments to consider. Mark Lindgren had $100,000 in outstanding loans from medical school that got canceled because only his name was on the loans. Ditto on a leased car.

Though already armed with the necessary documentation, Eva says the time and effort to wade through the crushing amount of paperwork was overwhelming. 

So imagine how devastating it would be for widows who don’t have that financial foundation in place. That typically starts a long trek through probate court, the costly legal process of handling estates that could last anywhere from six months to a few years.

Financial surprises in marriages

Emily Green, Ellevest’s head of private wealth, has seen it all: Unprepared widows, dazed divorcees, high-powered women who haven’t paid attention to financial planning, and women approaching retirement who are simply burnt out at their jobs. 

“Typically, when our clients come in, there is some anxiety about their money,” she says. “Most women who go through divorce or widowhood see negative financial surprises, which could mean a lot of different things.” 

Maybe there’s less money than they thought, or they didn’t know where all the accounts were, what was held, what was invested, and the why of it all. 

“It’s not like they [the women] didn’t want to know what was going on, but in many cases, their financial adviser happened to be their husband’s buddy whom he golfs with,” Green says. “They might have been talked down to or completely ignored and their names weren’t even on the books of some investments and accounts.”

One of her clients, for example, was taken aback to find out that during divorce proceedings her husband had taken out a sizable home equity line of credit to fund a business project and had other business loans tied to their personal assets.

For women in their 50s who might not know exactly what path their financial future is taking, it’s time to step up, Morningstar’s Benz says. “The good news is once you are in your 50s, you’re oftentimes in the empty nest phase, paying for your children’s college is in the rearview mirror and you can turbocharge your savings,” she says. “Assuming you’re working, you still have 15 to 20 years to continue saving for retirement.”

How? First and foremost, take advantage of additional catch-up contributions and funding for a traditional IRA or a Roth IRA accounts. Don’t be afraid to invest in the markets. “You need the growth potential that comes with stocks, but know it always carries more volatility,” she says.

Jonathan Price, a national retirement practice leader at Segal, an employee benefits consulting firm, adds, “What’s important to realize about retirement planning and saving is that ultimately it’s about retirement income.”

Be ready to reset retirement goals

Women in all stages of life should take a step back and think about how to best envision their future, says Ellevest’s Green. “You really need to look at a plan of how you want your retirement to look and the tradeoffs,” she says. “Once you see what really matters to you and what you have to give up in order to make that happen, you can put together a financial plan that has some flexibility in it.

“I’ve seen some very terrible situations, but even if you end up with half the money you had before (you were divorced or widowed), you have to reset and look at changing your lifestyle,” she adds. Or, as she tells clients, “I’m not here to tell you what to do but to give you the framework of what you can do.”

Surround yourself with a trusted team with whom you’re comfortable having open conversations, including a financial adviser, an accountant, and an attorney who will help you look at your situation holistically. “Too often people think they have a financial plan when they just have an investment strategy,” says Allison Alexander, a financial adviser at Savant Wealth Management in Chicago. 

Investments need to be integrated with estate planning, tax planning, charitable giving, and education planning. “You can’t make a decision on one without the other. Everything is related,” she adds.

And be ready to reset your goals. “My retirees who do their best have a new purpose in life,” Alexander says.

A retirement planning checklist for women

A dozen things every woman needs to do for a secure retirement:

1. Have the money conversation before diving into a relationship. Learn the money habits of your partner, share yours, and make sure you’re both on the same page on how to handle them. 
2. Don’t leave financial matters to your spouse or partner. 
3. Familiarize yourself with everything—all accounts, all property, all debts—and weigh in on all decisions.
4. Fully fund your own 401(k)s, IRAs, or other retirement accounts.
5. Consider adding life insurance and long-term healthcare plans to help cover financial or healthcare hardships later in life.
6. See that wills and other estate documents are current. They will likely need updating periodically.
7. Be sure each person in the relationship has their own trust. Without one, the estate could end up in probate, a costly event, for anywhere from six months to a number of years. 
8. Keep individual loans, say for education or car leases, in separate accounts. If both names are on accounts, the surviving spouse will be liable to pay off the debts.
9. If you are in a committed relationship, don’t mingle your accounts and funds any more than absolutely necessary to run the household.
10. Make sure to update beneficiaries if circumstances change—no exes anywhere on anything.  
11. Make sure beneficiaries themselves are up to date on all accounts so they know what to expect should anything happen.
12. Keep at least one credit card account in your name only. An individual credit history can go a long way if you find yourself divorced or widowed.

Note: This item first appeared in Kiplinger’s Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe for retirement advice that’s right on the money.

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