Life expectancy is increasing, and more people are living to age 100. People typically spend 20 to 30 years in retirement, sometimes longer, and so retirement funds need to stretch further than ever before.
With odds stacked against them, women are likely to be worse off in retirement than men. Women are far less likely to seek financial advice for several reasons including a lack of confidence, because they do not think they are wealthy enough, or because they find the idea of seeking advice a daunting and intimidating experience. The stark reality is that many women will unfortunately outlive their retirement savings.
Why are women at a disadvantage in retirement?
On average, a woman’s pension is just one fifth of the size of a man’s pension at the age of 651. What’s more, women typically live longer than men, and so they are left with a much smaller pension that needs to last longer.
Women are further disadvantaged if they get divorced. While the divorce rate in the UK is decreasing overall, divorces among the over 60s are increasing. A divorce can have a negative impact on personal finances.
Here are just some of the reasons why women typically retire with less money than men:
- Many women take time out of work to raise their family and so their income is reduced.
- After a career break, women are less likely to receive a pay rise.
- The gender pay gap persists and it is exacerbated when women approach retirement. More than 60% of women choose to work part-time between the ages of 52 and 69, compared with only 24% of men2.
- Women are less likely to have investment experience and, in many circumstances, household savings and investments are managed by men.
Not only are women at a disadvantage when generating wealth for retirement, they are also at a disadvantage when spending their retirement savings. The average cost for a man to live out his life in a care home in the UK is £82,000, whereas it would cost a woman £132,0001.
How can women improve their retirement prospects?
The first rule of any retirement plan is to start sooner rather than later. The sooner you begin to save, the more time and potential you have to reach your goals. You can make smaller contributions over a longer period of time, and the effects of compound interest will also bolster your retirement savings.
If you take time out of work be sure to top up your National Insurance credits to protect your State Pension entitlement. And if you’re in a position to do so, contribute more toward your workplace pension to counteract time spent out of work.
Understandably, many women plan for a joint retirement with their spouse. However, it is important to prepare for the worst even if it never happens. Ironically, money can be one of the top reasons for marriage breakdowns in the UK, and so couples should talk openly about money more often. You should look to build a secure retirement plan as a couple with your spouse, and as an individual.
Worryingly, the first time many women meet with a financial adviser is when getting a divorce or when their spouse dies. However, it is vital to seek financial advice to create a focused retirement plan and gain both confidence and peace of mind in your investment decisions and your financial future.
Last, but not least, you should review your pension regularly to understand how well your fund is performing and make any necessary changes.
At Frizzell Wealth Management, we take a relationship-based approach to working with clients with the aim to build long-term trust and peace of mind. We work closely with clients to understand their individual circumstances and recommend the most suitable approach for their needs. We take the time to carefully explain your options in a way that makes sense to ensure you feel comfortable and in control of your finances.
1 – Jane Portas and Insuring Women’s Futures, Chartered Insurance Institute, 2019
2 – ONS, Living longer: caring in later working life, 2019
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.