Episode 29 – Women and retirement
Episode transcript:
[music intro]
Jenny
Welcome back to Fund Your Future with DRS. We’re glad to have Catherine back in the studio with us for an important topic today, focusing on how women can be better prepared for retirement. So to all the women out there, this episode is especially for you and Catherine, I know that this is a topic that you’re especially passionate about for your job. You get to talk with men and women all the time about retirement planning.
Catherine
Yes. I am passionate about, well, being a woman myself, it’s important to be aware and passionate about it. But it’s because I have met too many women who will say, “oh, I don’t even look at that. I don’t even want to talk about that. Oh, I let my husband do that or something…” I’ve met way too many women with that attitude. And it comes from fear. It comes from fear. And so, yes, I think it’s very important to discuss.
Now, first I want to say there are women who look at it, who have addressed it, who know they’re going to have a pension, they have savings. They’re set. I have a roommate from college…Oh, my gosh, She had a fabulous job. She’s been retired a few years and she’s doing just fine. But yeah, this is an important topic.
Jenny
So, let’s kind of jump into it. What are some of those particular obstacles…
Catherine
Well, it’s a good thing, really, but something to consider is: women live longer than men, so they have to fund a longer retirement typically. And when you’re living longer and you’re living into your eighties and your nineties, those are expensive years because that’s typically when not only your health care demands may increase, your housing costs could increase.
You may not be able to live in the family home or where you have been living, and there are some extra expenses. Last I heard, the average 65-year-old man lived to about 83. I think it is. Whereas woman lives to 86 and a half.
Jenny
Yeah.
Catherine
Well, I’m not complaining. That’s a good thing.
Jenny
I know! We both hope that we live for a long time. But like you said, there’s definitely some little extra planning and you have to make that money last longer.
Catherine
Yes, you do. And then if I’ll go into another reason is: women typically earn 21% less than men. Okay, this is an average.
Jenny
Stereotypically speaking.
Catherine
It’s less than men. And for a lot of reasons [women] may not have been in the workplace long as most men so haven’t had the chance to make the increases. They may be in jobs that are lower paying for a variety of reasons. And then there’s the old standby of basic discrimination because of gender. We’re getting away from that, certainly in the state — I like to believe that.
We have an executive director who’s a woman and our last executive director was a woman here, at DRS. And that’s changing. But it’s still, you know, I’m old enough to remember. Yeah, I am old enough to remember how I couldn’t even get a job in certain categories because I was female. But, working for the state back in the day.
So, here’s another reason. Women have fewer years of earned income than men. And we’re not talking about all women, but we’re talking about a significant amount of them because they’re in the home. They’re not only in the home when their children are small. Being in the home is a very important, it’s a huge gift to society.
And to nurture of their offspring. But they’re also in the home when their elderly parents need them. And it is not uncommon… even if there is brother and a sister for that, the sister, for the daughter to do the primary care of the elderly parents. And so you can see women leave the workforce for seasons probably right when they’re earning the most in their fifties probably forties fifties – to care for parents.
Jenny
Interesting. Yeah. And again, we want to address that, obviously this day and age, there are more men that are staying home to take care of the children. We’re seeing all of those combined roles. But again, stereotypically speaking and just being aware of how that affects your Social Security as well. And this is something that as a young person, you know, I haven’t really looked into a lot of Social Security and how that works.
But obviously this is a big factor. When the money that you receive as your Social Security check is based on how many years you worked and how much you made. So, I mean, I remember when I was first out of college, I was working a part-time job. I obviously wasn’t making as much. So that affects Social Security and like you said, taking time off to either take care of a young child or an aging parent affects that Social Security check as well.
Catherine
It affects Social Security because Social Security is based on your 35 highest years being in a job where you’re contributing to Social Security. You could be working in a job that doesn’t contribute to Social Security and that can affect it also.
Jenny
Right, like if you’re running your own business.
Catherine
Yeah. And there are other jobs even out of state. I worked in Texas for a while as a teacher. They don’t contribute to Social Security. I know that there are different employers, public employers in Washington, that don’t contribute to Social Security. So, yes, that is a factor. Also, here’s another thing. Women are more likely to work part time jobs if they are the primary caregiver in the home.
And they want to bring in more income, more likely they are going to get a part time versus a full time job because they already have a full time job. Right? Just doesn’t pay much. So that factors in. One, I just want to throw this out before I forget it, though. It’s important for people, women to realize there are part time jobs and there are part time jobs because with the Department of Retirement Systems, you can work part time and earn full time credit service credit 90 or more hours a month, and you are earning a full credit every month.
Jenny
Towards a pension. Yes.
Seth
The very first time I became aware of this was when I was helping a husband and wife retire and they were both teachers and they both started work at the same time. They were both retiring at the same time or they were the same age and the wife’s pension was significantly lower because she had taken a couple of years off to raise kids and had worked part time for a while.
And so, they were earning the same salary at the end of their career. But it was that kind of missing gap of retirement service credit that made this difference. And it wasn’t something that either of them were really aware of at the time. But as they were, you know, starting to look at their pension benefits and how they would interact with each other and if they would have a survivor benefit and who would have a survivor benefit. They really became aware of this significant difference that had accrued over time because of the roles that they had chosen earlier in their life.
And it’s definitely something that I think we all need to be aware of and how our pension benefits are impacted by how much we’re working or when we’re choosing not to work.
Catherine
Yes, well, I have a little story. I have a couple of housemates. One housemate worked in the school system as a para educator, worked her tail off as para educators typically do not make very much money. Over time of course, I’ve had to teach her about retirement. I wanted to [say] “okay this and this and this.” Living as a housemate, she came to realize that her average final compensation on which her pension would be based is determined by her highest 60 consecutive months.
So, what did that trigger? It triggered her saying, you know, it’s not what I’ve done in the past, it’s what I’m going to do in the future. Right? Yeah. And I said, “probably.” Well, she’s no longer a para educator. She has spring boarded… she’s still working in the schools, but she has spring boarded into an administrative position where I think she’s making in the seventies now.
And so, I don’t know for sure, but a lot more, A lot more. And that is what — assuming that she continues working, she gets five years and in her new salary and she’s going to be making raises — and that’s a huge difference by just realizing that and taking a few steps in the same industry to put herself in a better position for retirement.
Jenny
Yeah, for sure.
Catherine
There’s something else I want to talk about. Women receive lower retirement benefits than men. And that is because of the things that we’ve talked about, because of working fewer years, because you’ve been in the home, because you may be working part time jobs, because there is this 21% difference in salaries that does add up as you were mentioning.
So that adds up to women in general receiving lower retirement benefits. So that’s why it’s so important to be aware, to look at things.
And here’s something, here’s another thing. I’ve met a lot of women who were unaware of their family finances. “Oh, I let my husband deal with that. Oh, he’s a numbers person.” It’s like, okay, that doesn’t give you an out. Sorry, I’m going to be mean about this. Just because he’s better at that doesn’t mean you can’t, [that] you shouldn’t know what’s going on.
Jenny
That’s why we obviously really try to stress that in the podcast about being aware of your finances and looking at your budget and all of those things.
Catherine
And it’s critical. It’s critical. I mean, you don’t have to do it the way everybody else does it. I’m somewhat dyslexic, so budgeting can be very challenging for me. But whether you use envelopes, or whether use sub accounts or whether you have a category or a different category, whatever works for you. But yeah, you should have a handle on where your what your expenses are and what your costs are so that you can live below your means, so you can save.
Seth
Yeah one of the things that struck me as you were mentioning, how these things also kind of can play together. And, you know, if you’re married and you’re living longer and your spouse passes away and you’re not as familiar with the finances. I was just talking to a customer on the phone a few days ago about this.
Her husband had passed away and she was just trying to understand all the different sources of income that she was going to have available to her going forward. And she almost said exactly what you said, just not aware, like hadn’t really thought about those things. And so trying to figure out how to do that earlier in life because, as you said, kind of the odds that she was going to live longer, you know, might have made that transition a little bit less scary for her.
But there are options. I know we’re going to talk about maybe some solutions or some things that people that women can do to try to help bridge some of these gaps.
Catherine
Well, I have a very dear friend who lost her husband surprisingly early, and she’s in her early sixties and trying to go forth. She didn’t have the passwords to some of their accounts and they had a rental income and she couldn’t collect the rent because it was automatically going into an account that she couldn’t [access]. It was complicated, very difficult.
And I understand because you think is going to happen someday. You don’t think it’s going to happen now. But it is imperative to be aware. To be aware of what’s going on.
So, one of my big tips and this is… don’t be mad at me when I say this. One of the big things for women to do is to save more. And I can just, I can just see eyes rolling as I say that because it’s like, especially if they don’t make a lot of income, it’s like, “how am I supposed to do that?”
Well, there are a lot of ways to do that. You can come up with different income streams, you can have a side gig, you can rent out a room, you can put yourself on a budget and eliminate some other things, even if it’s a trickle now. And I’m talking to young women right now, not just ones closer to retirement, young women who just even start off slowly, $30 with a deferred comp account.
You start set that up in your twenties and you just automate it. And then when you can, you build a little bit. Yeah, 30 years later when you’re in your sixties, honey, you’re going to be in a good position. I’m just betting, I’m just betting.
Jenny
Yeah. Or rather, even with Deferred Comp, we try to encourage people to set a percentage of your income. So even if it’s just 3% of your income, if you’re a younger person right now, that’s going to go up every time that you get a raise. Or maybe you yeah, either just naturally get a raise through the through the state or you take a higher position that’s going to increase your savings automatically.
Catherine
And you want to check with your employer. If they offer the percentage options the state does and many employers do.
Jenny
Yeah. And then even at DRS, we regularly encourage folks to go into your DCP account and say, okay, well if you’re contributing 3%, maybe it’s been a little while and you could bump that up to 4 or 5% and you probably won’t see too much of a strain on your budget.
Catherine
Yeah, well, you know, we are in high inflationary times right now and things are costing more and more. So, it might not maybe right now you can’t. But this is not going to be the way it is forever. You might take a breather for a little while and then wait until you’re in a better financial position. If you are struggling financially right now but have that as your goal because everybody needs a pot of money in retirement.
Even if you work 30 years and you’re in Plan 2 and you’re expecting 60% of your average pay, and then you’re going to have a good Social Security. Even with that, you still need, you still need access to cash. For retirement because there’s going to be the neighbor’s tree that falls on your roof during an ice storm and you’ll need to get it fixed immediately so you won’t have to wait weeks for the insurance company to get their act together.
That was my parents’ situation. So, I think there are some things that happen and having access to a pot of money makes life a lot better.
Jenny
Yeah. So, what would you say to women who maybe are in a relationship and they want to get a better understanding of their finances? Would you encourage them to maybe open up their own savings accounts separate from their spouse or…?
Catherine
Well, I’m not a financial advisor. I can’t tell them what to do. But if you’re in a relationship, you do need to talk it out with your spouse or partner. But I think at the very least, if that person is more of a numbers person than you are, that’s fine. You just need to be aware. You need to know what the passwords are and what usernames and passwords to all the accounts.
You need to know the procedures. You need to know when the bills, certain bills are due, whether you’re young or whether you are in retirement. You need to have something written down that you can refer to so that your life can go on should anything happen. Like, they get sick and you know, even if they don’t pass, if they’re super sick, they probably would need you to take care of some business for them.
You know, I was just talking with a woman this afternoon who was married for a very long time, worked in the home quite a bit and got divorced. And she has only been working for a position that offers a pension [for] 16 years. So, at retirement, she’s not going to have the huge benefit. In fact, I’ve talked with several women who’ve worked less than that and they want to leave.
They want to leave their job and they want to retire. But the question is, will they be able to afford that? By the way, if you are in that position where you don’t have a lot of years and you really want to leave for some reason, maybe your health need, to do something different. I am not advertising a particular credit union, but there are many credit unions out there, maybe even financial institution that have financial planning services that you may not have to pay for.
And so, I think that can be a big issue if money is tight. Sure, a financial planner is a great idea, but then how do you pay for that?
Jenny
So there are a lot of financial institutions out there that offer free financial planning advice.
Catherine
But educate yourself. Even if it’s watching YouTube videos, listening to podcasts, just start educating yourself. Because the more you hear the terms, the more comfortable you’re going to be, the easier it’s going to be the process. Understand what it is to be a survivor. That’s a term used to talk about a particular type of beneficiary.
So, when I was first hired on in this job ten years ago, there was this wonderful guy I met. He was in his seventies years or so, and he had worked in public service and retired and didn’t realize the consequences of not naming a survivor. He was married. And so, he retired and then realized what would happen to his beloved wife.
Jenny
And just for our listeners that don’t know, what is the scenario that plays out?
Catherine
Well, a survivor is someone who, after the passing of a member, gets a monthly benefit every month of his or her life. As long as that person lives. When someone does not have it, when a member, a pension member, does not have an individual named as survivor, when they pass their benefit, their monthly payment in retirement stops, it just stops.
And typically there’s no money left to send out to the beneficiary because typically the contributions and interests of a member, we’re talking Plan 1, Plan 2 right now, those are used up in the first 3 to 5 years of retirement. And most retirees are not passing within 3 to 5 years of retirement. So, most option one beneficiaries are not getting anything after the death of the member.
So, option two, option three, an option for that’s when the member has named a survivor beneficiary. It reduces their benefit, their retirement benefit. But it ensures that their loved one, only one human being, will get a monthly payment when they pass, and they’ll get it for the rest of their life, and then it will end upon the survivor’s death.
That’s how that works. So, I can just see that this very nice man who dearly loved his wife didn’t understand what the heck he was doing and he retired and he didn’t name his poor wife who had worked in the home all of her life, as a survivor. So, you know what he did? He went back to work and he went back to public service and he enjoyed it so much.
He kept working for 13 years and then re-retired and named his wife as a survivor. You can do that, by the way. You can go back to work in public service, stop receiving your retirement benefits, start contributing again, and then re-retire and name a survivor.
Jenny
Yeah, but it is one of those things that you really have to do at the time of retirement. Otherwise, if he had passed away, his poor wife would have missed out on that monthly retirement benefit. Yeah.
Seth
Yeah. I’m reminded of our conversation with Bruce on a previous podcast when we were talking about financial plans and financial planners. One of the things that he said that really struck me was coming up with a plan for if one of you lives really long and one of you dies early and then coming up with a plan with you for the opposite scenario, then coming up with a plan for if you both live really long and it’s a really concrete example of why that’s important, to think about those different scenarios that could play out.
And what does it look like? Jenny, You mentioned earlier kind of the different rules around Social Security, and that’s another thing to take into consideration. On playing out those different scenarios can be really helpful when you’re thinking about that it’s really possible that somebody is going to live a really long time and most likely is going to be a wife.
Catherine
Yes, more often than not.
Jenny
Yeah, and kind of getting back to that Retirement 101 of learning all of the lingo. So, if your spouse is going to receive a pension and you are not, very good idea to make sure you are listed as a survivor on your spouse’s pension.
Catherine
Yes. And survivors have right of refusal, not the member. If you are married, the member is required to name the spouse as a survivor in either options two, three and four the default option is three: 50%. And it is the spouse’s option to say no, I don’t want that or no, I won’t take it.
Jenny
Yes. And I think that’s super great that there is that safety bar in there. As a spouse, you do have to sign off on that. We’re not just going to let this person cut you off. Yeah, yeah. Yes.
Catherine
So, there is a an organization called WISER. It references women’s retirement issues and they’ve come up with some strategies. If women take these steps, it’s going to put them in a much better position. One of them is to learn about various sources of retirement income. So one of the sources is the pension. Another source could be from an investment.
The state of Washington offers a 457b account. It’s called Deferred Comp. That can be an income source in retirement. But there are other sources of income in retirement. Let’s say you have a part time job. Let’s say you rent out a room or you buy a piece of property and rent that out. It’s not all about saving.
It’s all about having a good quality of life. That’s what it is all about. Another solution that WISER recommends is to look for good advice. And you can find that in a variety of places. You don’t have to spend money. There are good advisors out there that you can go to and other resources just to keep growing your knowledge base.
Jenny
And as we mentioned, a lot of them are free. And so, it’s important to shop around and look for those particular resources.
Seth
Yeah, I also think that it’s not just financial planner but like estate planner or an accountant. Like, all of these things that piece together around your money are things to keep in mind. You know, working with a lawyer on a will. All of those things are different forms of advice around finance.
Catherine
Exactly. Finding someone who understands taxes and can give you a tip or two, that will help a lot. Here’s another solution. I know I said solution. Okay, listen: don’t count on working. The truth is, I’ve heard too many women say, “Oh, I’m just going to work till I die.” I’ve actually heard that. And the truth is, that’s not true.
But the reality is that our bodies give out, our minds give out. And that may not be an option for you. So don’t count on working. Hey, working is great. I remember when I first took this job and I was given one of my first seminars. There was a teacher there in her eighties and I’m like, “I’m not telling teachers they should work until their eighties…” But she loved what she did, so there’s nothing wrong with working later.
Here’s another one of their tips: deal with inflation. I just so love that In Washington State, the pension comes with a COLA for Plans 2 and 3. Most defined benefit plans in the United States do not pay a cost of living adjustment. So that’s good [that we have one for WA].
Here, let me throw a few others out: face facts about long term care. That is expensive. Usually you’re in there for about three years on average. So yeah, you might want to consider buying the insurance. I didn’t qualify to even buy the insurance. Some people because of health care conditions, they don’t. But many people may need to be in care.
Seth
Well and I know there’s a new long term care program through the state and I think we’re… Jenny you and I have been exchanging emails with someone to try to get a guest on the podcast as well to talk a little bit more about that.
Catherine
Because that can affect your finances dramatically. When my mother went into a nursing home, [it was] $12,000 a month.
Jenny
Yeah. Exorbitantly expensive.
Catherine
And I was so happy my dad had saved through Deferred Comp and this is another tip from WISER and that is to: record your financial essentials. You’ve got a budget written down, you’ve got your passwords recorded someplace safe.
Jenny
I’m that’s what I was going to ask kind of what are those the financial essentials, maybe a running balance or maybe even just a tally of like, here’s all of my accounts, maybe like income streams.
Catherine
I think both. If something happened to you and you needed some help, you could easily, you know, a child, a family member, a trusted [friend]. That’s another thing, as you age, you want to identify a trusted person who can help you if something happens to you. Now when you’re younger, not a bad thing either; to develop relationships with people that you can trust, you can turn to for advice and for if times get difficult. It’s about resources. “I know a guy.” I mean, you know, “I know somebody who can help you with that.” And that’s a good thing. That’s a good relationship to have.
Jenny
And typically, women are good about reaching out and having those resources and building community. And so all the more reason to ask your community, ask your friends, ask your coworker – theme of our podcast, you know, bringing up those conversations about money, saying, “hey, do you know of a financial advisor I could talk to? Do you know of some steps that I could take for this?”
Catherine
Even if you think it’s going to be difficult and you don’t want to look at it going to encourage you to do it anyways.
Jenny
Yes. Rip off the Band-Aid, just do it anyways.
Catherine
Because it gets less scary. The more you look at, you start thinking about the possibilities of your life.
Jenny
Yeah. And also just having a picture of what that, what my retirement could look like. Do I want to work farther or do I want to have these options if I want to go volunteer? And all of those planning options.
Catherine
Well, do you want to live in another country for a little while? To defer your Social Security so it can grow 24% from your full Social Security age, to age 70.
Jenny
Oh yeah. There you go.
Catherine
There are options and the quality of your retirement probably has more to do with your health, more to do with your social relationships, with how you’re going to spend your day than it does necessarily with your bank account. Because there are a lot of women who – they’ve done the numbers, they’ve got the money coming in, and a lot of our advice is: well, what’s your plan in retirement?
What are you going to do with your life? And people say, “Well, I’ll think about that once I retire” or “I’ll do that, you know, I’m going to sew or I’m going to hike” and I’m going to say: “That’s great! But come up with a transition plan.” Because you’re working at least 40 hours a week now. Most likely. All of a sudden that stops.
The people that you used to see, you’re not going to see anymore. Yeah, take three weeks off. Don’t do anything, but then come up with a plan. When are you going to work out? Where are you going to volunteer?
How are you going to stay connected with other human beings? Try different volunteer activities. I’ve been saying that more and more, because if you don’t feel good, if you’re not seeing people, you’re going to have a lot of money and be very unhappy.
Jenny
And we always go back to, setting some goals can really be helpful, even if it’s small goals of like, “okay, I want to take a trip to X-Y-Z Place,” even if it’s somewhere within the United States, setting those goals can help you.
Catherine
Have something to look forward to.
Jenny
…something to look forward to. Exactly. And also, have a reason for wanting to set that money aside now.
Catherine
And it’s within your savings and then you have an emergency savings, of course. Oh! That’s one thing I didn’t mention, for women to have… I’m sorry, I didn’t mention it earlier! I will say it now. Please create an emergency fund of at least 3 to 6 months. Okay. Yeah. We know that there are a lot of financial advisors on TV saying more than that, but yeah, start with 3 to 6 months of expenses.
Jenny
And just to reiterate, this is separate from DCP. This is a savings account, high yield savings account. Most of them are getting about 4% interest right now and having that cash set aside. But it’s for a rainy day.
Catherine
It’s a hedge of protection because it will rain. It will rain. And you will get flooded out if you do not have it. But if you have an emergency fund, there will be a hedge protection around you and you will not only be able to help yourself, you’ll be able to help others when bad things happen.
Jenny
Yes. Well, thank you so much, Catherine. Speaking with experience and you talk to people all the time about this and have some really great insights as to how women can tackle these challenges as and set themselves up for a really great retirement.
Catherine
Yeah, it is possible. It is very possible.
[music outro]
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