Prudential Financial : Working women in two-income households face unexpected retirement risk

New research shows married women in dual-income households are less prepared for retirement than single women.

By John Chartier

June 11, 2019

Chances are you've seen re-runs of 'Ozzie and Harriet' or 'Leave it to Beaver,' or some other film or TV series depicting life in 1950s America.

The stereotype goes like this: Men worked. Women stayed home to raise the children. Men took care of all the financial responsibilities, including retirement and they lived happily ever after.

Needless to say, perceptions and reality of family life and marriage have changed dramatically in the intervening decades and today, women spend more time single than ever. In fact, women ages 50-59 have spent just about half their adult lives married, according to new Prudential-supported research, Planning for Retirement: Women in Two-Income Households at Highest Risk. That's because of three reasons: women are more likely to never marry, are likely to marry later, and divorce is more common than in the past.

When it comes to retirement savings, it's critical to consider the risks women face based on their marital histories. Yet new research from the Center for Retirement Research at Boston College's National Retirement Risk Index (NRRI), finds the risks may be contrary to what many believe.

The NRRI, which assesses the retirement risk of working age households, turned out to be much higher for married women in two-earner households than for single women. Combine this with the fact that women on average earn about 20 percent less than men, receive fewer Social Security benefits and accumulate 32 percent less in retirement savings, the seriousness of this problem becomes clear.

'There's a common perception that single women are more financially challenged than married women, especially if they've never been married,' says Salene Hitchcock-Gear, president of Prudential Individual Life Insurance. 'But the reality is that married women in two-income households are in the more precarious position.'

There are a couple of reasons for this. First, two-earner couples tend to under-save in their retirement plans. Research shows that in half of two-earner couples, only one earner is covered by an employer retirement plan. But the covered workers tend not to increase their contributions to compensate, according to the Center's Prudential-supported research.

Second, two-income households pay more in Social Security taxes but receive proportionately less in Social Security benefits per tax dollar paid than a one-income household with the same level of income. That's because Social Security provides a non-working spouse benefit equal to 50 percent of the worker's benefit. If the non-working spouse goes to work, that benefit declines and ultimately disappears when a spouse earns half of what her husband is earning

Divorce can also compound the problem. About one-third of the married women in the NRRI analysis had been through a previous divorce, adversely impacting the economic status of their new household. In fact, CRR research shows that for households that have been through a divorce, the risk to retirement readiness is seven percentage points worse, on average, than it is for households where neither partner has been divorced.

Janice Co, chief strategy officer for Prudential's Workplace Solutions Group, points out that two-income households typically make more, but save less, which can also put them at retirement risk.

'Two-income households typically get used to living a two-income lifestyle,' Co said at a Prudential's 'Women at the Wheel' financial wellness event June 10^th in Washington, D.C. 'They tend to spend more on fixed expenses like mortgages and car payments, but they are more at risk of seeing their financial plans upended by unexpected events or emergencies.'

So how should women protect against these risks? Co and Hitchcock-Gear, along with Alicia Munnell, director of the Center for Retirement Research at Boston College, offered some tips. When younger, women should start saving early for retirement. For example, consider the big 4: start early in your workplace retirement plan, commit to automatic escalation, maximize the company match and track retirement savings in terms of an income goal instead of a savings goal.

Also, be cautious with 'low-risk' investment options. Truly understand what the risk is, such as low growth rate. And don't underestimate the likelihood of becoming a caregiver, which can create financial burdens of its own.

In older years, consider working a few years longer, and take advantage of catch-up contributions, especially if behind on your savings goals. Maximize Social Security claiming options and consider insuring retirement income against longevity and market risks with guaranteed income products such as annuities. And make sure to carry an adequate amount of life insurance.

It's always been important for women to plan and save for retirement. It's even more true today, especially for women in two-income households. They should begin saving more for retirement as soon as possible, especially if one spouse, or both, lack access to a workplace retirement plan.

For more information, read 'Planning for Retirement: Women in Two-Income Households at Greatest Risk.'

Since individual circumstances vary, contact a financial professional to address your personal needs.

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Monique Freeman
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