Planning for the future can be a daunting task. The younger you are, the easier it is to put it off until next month or next year. The older you are, the harder it is to find the time and the energy. Both men and women need to plan for how they will pay the bills during their retirement years. But it is especially important for women, who live on average four years longer than men and as a result need more income. It’s important to understand the facts and learn how to plan for the future.

Over the next two decades, nearly 40 million women will reach retirement age. Unfortunately, our nation’s retirement system was created at a time when men were the primary wage earners and women worked at home; the system has not kept up with the times. Some women today are fortunate enough to be able to rely on a stable retirement income known as the three-legged stool: 1) Social Security benefits, 2) income from an employer-provided retirement plan and 3) individual savings. In theory, these three legs stand strong and provide enough income to pay the bills, cover health care costs, weather unforeseen tragedies like illness or the death of a spouse and, in the case of Social Security, adjust fully to rising inflation. However, for most women that three-legged retirement stool is wobbly at best.

Many older women rely on Social Security as their only income source in retirement; they have no retirement plan and little savings. Many also took time out of the workforce to raise children or to take care of a family member who was ill, and often when they returned to work, it was to low-wage jobs with no benefits. Women take on average 13 years out of the workforce for family caregiving.

Generally, financial experts suggest that people plan to replace between 70 and 90 percent of pre-retirement income if they want to maintain their current lifestyle during the estimated 20 to 30 years spent in retirement. But because of their longer lives, lower pay and lack of benefits, women need to replace even more than that—some experts suggest at least a 100-percent replacement rate.

The Three-Legged Stool

Many older women rely on Social Security as their primary or only source of retirement
income—it keeps almost 40 percent from falling into poverty. However, Social Security
replaces only 40 percent of an average worker’s wages. That 40 percent is not enough alone, and the fact that they are without other sources of income such as pensions or savings is one of the major reasons why so many older women live at poverty’s door.

Private pensions and retirement savings plans such as 401(k) or 403(b) plans are the second leg of the retirement stool. They are a valuable part of a retirement income package, but they are not always available to women. Less than one-third of retired older women today receive pension income. And the situation is not improving. Less than half of working women have access to a private pension or retirement plan at their jobs. Additionally, women often leave jobs before vesting in a pension benefit, and because the dollar amounts they receive are smaller, they tend to spend all or part of any lump sum distribution they receive from 401(k)-type plans.

The third leg of the retirement security stool is individual savings. Because of the changing nature of employer-provided pensions and savings plans, women must save on their own and save more than men—not only because they live longer, but also because they are more likely to have higher expenses for health care, long-term care and prescription drugs. Unfortunately, women’s lower average earnings and more time out of the workforce for caregiving make it difficult for them to save the amounts needed for retirement.

Today’s vs. Tomorrow’s Income Security

Times have changed since the three-legged stool model was conceived. Over the last several decades, women’s labor force participation has increased dramatically. Today, the majority of women in every age group are in the labor force. Unfortunately, our retirement income system has not responded to the change in the composition of the workforce, and this is one of the primary reasons why the traditional three-legged model of retirement income is so wobbly for women.

Even though women have worked in some capacity their entire adult livesóraising children, caring for an ill parent, as well as joining the paid labor force either full- or part-time, millions of women find themselves with few financial resources when they look toward the future, and many are vulnerable to the real possibility of poverty in their retirement years. It is clear that without significant changes, women’s work patterns and caregiving responsibilities will continue to place them at a disadvantage in our nation's retirement system. As long as women earn less, live longer, and experience more interruptions from paid work and work in the types of jobs that do not provide benefits, the bleak retirement picture will remain largely the same, and retirement security for millions of women retirees will remain elusive.

Written by: Cindy Hounsell, Chapter 1, “What Women Need to Know About Retirement”
A joint project of the Heinz Family Philanthropies and The Women's Institute for a Secure Retirement