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Women, Marriage, and Retirement Risk

Mark Miller unpacks a new study's surprising findings: Married women face more risk in retirement than single women.

Financial security in retirement depends on economic success during your working years--that seems intuitive. People who earn more retire with higher Social Security benefits and savings.

But a recent research report challenges this premise for a key demographic group: married women. Married women do tend to have higher incomes and accumulate more wealth, but that isn't translating into more security in retirement, according to a study by the Center for Retirement Research at Boston College, or CRR.

The CRR compared retirement outcomes for single women and married households in their 50s using its proprietary National Retirement Risk Index, or NRRI. The index, based on data from the Federal Reserve's Survey of Consumer Finances, measures the retirement risk of working-age households by comparing their replacement rates--that is, the amount of retirement income they can expect as a share of preretirement income--with a targeted rate that would allow them to maintain their preretirement standard of living.

Their counterintuitive finding: Married women are more likely to be at risk in retirement than single women.

Yes, married women are generally better off than single women--they have higher earnings, more financial assets, and home equity, and they are more likely to be covered by a defined-benefit pension. Their households often benefit from having two incomes, too.

But a key issue in retirement security is the amount of preretirement income that you can replace--and that's where the problem lies.

"The big issue here is being able to maintain your standard of living in retirement," explains Geoff Sanzenbacher, CRR's associate director of research and a co-author of the report. "It's true that single women are more likely to find themselves living in poverty, but the NRRI looks at your ability to maintain your preretirement standard of living. Married women tend to be less prepared, because of the need to replace two incomes."

In other words, married women face a greater risk of a sharp drop in their replacement rate during retirement because there is more preretirement income to replace.

The CRR identified three factors that contribute to the problem.

Social Security Social Security's benefit structure is progressive--it provides a higher benefit to relatively lower-earning workers. Married couples tend to be better-educated and have higher incomes, so their Social Security replacement rate tends to be lower. The CRR found that in 2016, the replacement rate for single women was 47%; for those who were married living in one-earner households, it was 61%; but for two-earner married couples, the rate was just 36%.

The declining relevance of the spousal benefit is another factor. Nonworking spouses can collect up to 50% of a working spouse's benefit at full retirement age, but the spousal benefit diminishes and then disappears if that spouse earns a higher benefit on her own. With a greater share of women now working, they are not claiming a spousal benefit.

"Remember, the benchmark is replacing your preretirement income," says Sanzenbacher. "With the spousal benefit, women were receiving a benefit based on 50% of their husband's when they were earning little. Even if they cross the threshold and start getting their own benefit, it is still replacing less of their household income than it was when they were basically earning nothing."

Undersaving The researchers also found that two-earner couples tend not to save enough for retirement in comparison with their single counterparts. Again, it's important to remember here that the NRRI measures workers' ability to maintain their standard of living in retirement; the problem here is that in roughly half of two-earner couples, only one earner is covered by an employer retirement plan. But the covered workers don't increase their saving rates to account for the absence of saving by his or her partner.

"People often don't understand this need to save for two," Sanzenbacher says. Another research report by the CRR found that the design of 401(k) plans tends to drive saving decisions, rather than a savings rate targeted by participants based on a retirement plan. For example, plans that auto-enroll workers typically set a low default savings rate of 3% of pay. And many workers contribute just enough to capture whatever matching contribution is offered by their employer.

As a result, members of dual-earning couples contribute a similar share of their earnings to their 401(k) plans as do single earners--the rate typically is 8% to 9%, including employer contributions.

[Deep Dive: Miller: Less Investment Choice = Better Retirement Outcomes]

Previous Divorce Almost one third of the currently married women studied by the CRR had been through a previous divorce, which creates financial disadvantages. NRRI data shows that a previous divorce increases retirement risk by nearly 10 percentage points.

The financial stresses stem from the cost of divorce itself--legal feels, splitting up assets, and lost economy of scale from having a single household rather than two. Women also tend to remain the primary caregivers for the children of divorced households, making it more difficult for them to work and save.

The News Is Not All Bad Broadening the lens a bit, the retirement risk trends for women are not entirely bad. For example, labor force participation rates for older women have risen in recent years. Among women aged 62-64, participation was 45% in 2015, up from 41.5% in 2006. (Rates for women aged 65-69 rose by a similar amount). This allows them to save more and to rely on savings for fewer years going forward.

Working longer also helps women to finance delayed claiming of Social Security--and they are doing just that. Thirty three percent of women claimed at age 62 in 2017, compared with 52% in 2000, according to the Social Security Administration. Still, only 7.7% filed between their full retirement age and age 69, up just a bit from 6.5% in 2000.

Mitigating Risk Sanzenbacher thinks the NRRI findings point to the need for two-earner couples to save more and underscore the need to expand access to workplace retirement savings plans. That has been the policy thrust of some states that have adopted auto-IRA plans and pending federal legislation aimed at promoting multiemployer 401(k) plans for small businesses. Expanded coverage also would help single women, he notes, since they are even less likely to have a retirement plan at work than married women.

I would add delaying Social Security as an important strategy. This is the best way to boost retirement income, even for higher-earning married couples that face the relative disadvantage of Social Security's progressive benefit formula.

A quick review: Waiting to claim until the full retirement age (currently 66) gets you 100% of your benefit; starting at 62 (the earliest opportunity) reduces your benefit for life by 25%. Waiting until after full retirement age of 66, you receive the delayed retirement credit, which is 8% for each 12-month period delayed. The credits are available until age 70.

An often-overlooked aspect of Social Security's value is the annual cost-of-living adjustment that it awarded to beneficiaries every year at no extra expense or risk. In this respect, Social Security is unique.

For two-earning couples where the higher earner is a man, a winning strategy often involves delayed filing by that spouse. Even though the wife may not be filing for a spousal benefit, she is likely to collect a survivor benefit later in life, since women tend to outlive men. The survivor benefit is equal to 100% of the deceased spouse's benefit.

Most wives will outlive their husbands by about six years on average, according to CRR research--and most widows get their husband's higher monthly benefit in place of their own as a survivor benefit. By delaying his own filing from 62 to 66, a husband can increase his survivor's benefit down the road by more than 20%, CRR calculates. Waiting until age 70 boosts the benefit by a whopping 60%.

Mark Miller is a freelance writer. The opinions expressed here are the author’s. Morningstar values diversity of thought and publishes a broad range of viewpoints.

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