The unique issues women face in retirement require careful planning

Financial goals vary widely from person to person, but most of us have at least one objective in common: achieving enough financial security to provide for an eventual – and hopefully relaxing and fulfilling – retirement. 

Planning for retirement is a complex and often challenging undertaking. The process tends to involve assessing the present to understand what your lifestyle actually costs. Including how this may change in future, research into various investments and funds, judicious saving and asset allocation, assessing pension providers and benefits, and discussions with family members, employers, and in some cases financial advisers. All in all, it’s a tricky business, whatever your chosen field or level of income. 

The impact of longevity risk

Globally, women tend to outlive men by roughly five years on average. 

The underlying causes of women’s greater longevity are still being studied and debated. What is clear, however, is that a longer life has important implications for retirement planning. Living longer means your retirement savings need to stretch further. Failure to plan adequately increases your exposure to what is sometimes called “longevity risk” – the risk that you run out of savings, leaving you less able to deal with both your established lifestyle and any unforeseen costs. If a woman retires at 65, for example, her savings will need to cover 20 to 30 years of housing costs, other living expenses, medical bills, and so on. This is a considerable period of time, and an unexpected illness, injury, or change in circumstances can exert significant pressure on both personal savings and any government benefits. 

How motherhood, menopause, and care responsibilities impact women’s pensions

Besides higher longevity risk, women also face a raft of well-documented structural and social challenges that can make it harder to build a durable retirement pot. A persistent gender pension gap can be observed across professions and career levels. 

Of these factors, one of the most important is motherhood. Women are likely to take longer career breaks than men to raise children. This can reduce the savings women are able to build and can also come with additional career impacts, sometimes described as the “motherhood penalty.” Even a woman without plans to have children may find herself passed over for promotions or viewed as being less committed to her career, as companies view the prospect of maternity leave as risky to their business. Women are also more likely to engage in unpaid care for relatives, such as elderly parents or grandparents, which can result in additional working hours lost, and leave little energy or time for focusing on their own needs.  It is not hard to see how a financial plan for the future can slip by the wayside when there is less money and time in the present

Another key factor is the menopause. Menopausal women experience a variety of symptoms – including fatigue, trouble sleeping, and reduced concentration and memory – which can impact work performance and lead to employees taking time off, or even quitting work entirely in some cases. Most women go through the menopause between the ages of 40 and 58 – the age bracket where workers are expected to hit their highest level of earnings. Health-based disruptions in this period can have substantial drawbacks for a worker’s income and for their retirement savings. 

While divorce will not affect all women, for those who do undergo a separation, pensions are not always fully understood and the fall in household income afterwards affects women more than men, due to the other factors already illustrated.  Family Law Court data suggests only 15% of divorces result in the division of pension rights, often because it feels practical at the time for one party to keep the pension and the other to take the property (often the woman, particularly where children are involved).  Court orders to split a pension, and financial advice can feel prohibitively expensive at the time, but the cost of not addressing the situation in full can be far greater.   

Finally, a number of studies have shown that female employees feel less confident in the workplace than their male colleagues. This can result in lower competitiveness: women may feel more reluctant to aggressively pursue promotions or take credit for achievements. 

Taken alongside women’s lower level of overall financial confidence, these differences can act as a barrier to savings, preventing women from building pensions and other savings to the same extent as men. 

Four strategies for retirement wealth planning

How can women address these disparities and ensure their retirement is as comfortable as possible? 

1. Educate yourself 

Closing the financial confidence gap discussed above may be the first step. Familiarity with the ins and outs of pensions, savings approaches, and financial products designed for later life is crucial for anybody aiming to develop a reliable “nest egg”. Building this knowledge doesn’t necessarily mean hiring a financial adviser – a wealth of tools is available to investors and savers looking to build their financial knowledge, and workplace pension providers in the UK provide detailed information on plans. 

2. Optimise savings and tax efficiencies

Women can also work to optimise their savings by taking advantage of tax efficiencies, like working with a partner to max out yearly ISA limits or – in certain circumstances – receiving direct pension contributions from relatives (taking into account the Annual Allowance and relevant UK earnings). Start saving as early as possible and as much as is affordable; compound growth is vital to produce a pot large enough to retire on. You could also consider, where affordable, paying into a pension for children (up to £2880 per annum net which will be grossed up to £3600 within the pension through tax relief). Saving early maximises option later. 

3. Consider longevity in wealth planning

Women should also create later-life plans with greater longevity in mind. This could include developing drawdown strategies to achieve adequate levels of income or delaying retirement – or taking a part-time position while retired – to increase savings pots. Employer contribution frameworks should be carefully researched to take full advantage of any benefits available – women who work part-time or earn less than £10,000 per year, for example, may not be auto-enrolled in their workplace pension scheme despite being eligible. 

4. Consult a wealth planner for major life changes

Major changes in circumstances – such as divorce – can have huge effects on later-life plans and savings. If facing a divorce, insist on engaging a wealth planner early on in the process. L&G’s research suggests only 7% of people seek financial advice. Many solicitors do not know how to value pensions and will not recognise their own blind spot.