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Thursday, August 2, 2012

Options for Providing Women With a More Secure Retirement


It's easy to see why elderly women are at a higher risk of living in poverty during retirement than their male counterparts: women tend to earn less, live longer, and they often spend more time out of the work force to care for family members, both young and old.

The Government Accountability Office, the investigative arm of Congress, recently studied the challenges women face, and highlighted several dramatic statistics. Take, for instance, the effects divorce and widowhood had on women versus men: Women's household income fell by 41 percent, on average, when they divorced, which was almost twice the size of the drop that men experienced. And once women were widowed, household income fell by 37 percent, while men's fell by only 22 percent.

This was also illuminating: Median income for women over the age of 65 was about 25 percent lower than men's over the last decade, and the poverty rate for women in this age g roup was nearly two times higher than men's in 2010, according to the study.  Women - particularly widows and those over 80 years old - were also more likely to depend on Social Security benefits for a larger percentage of their income than men.

The G.A.O. compiled several potential options that, while they would be available to everyone, may especially benefit women planning for retirement. Many of these ideas, however, will cost the government money, while others would require the blessing of Congress, which could make any changes difficult in this political environment. So what did they come up with?

Automatic I.R.A. Employers who do not offer a retirement plan would be required to automatically enroll employees in an Individual Retirement Account, unless the worker opted out.

Expand the Saver's Credit This credit - a tax credit for retirement savings for low- and middle-income workers - could be made “refundable,” which means the credit would reduce the amount of tax owed, dollar for dollar. And if the amount of the credit exceeds your tax bill, you get to collect that extra cash.

Caregiver I.R.A. contributions This would allow all caregivers to contribute to I.R.A.'s up to the qualified contribution limit, based on the individual's adjusted gross income in the year prior to becoming a qualified caregiver. That would allow people to continue to save while providing care, if they could afford to.

Expand catch-up contributions Right now, workers age 50 and over can make additional “catch-up” contributions of up to $5,500 to their defined contribution retirement plans like 401(k)'s. This proposal would allow workers age 40 to 49 to make the extra contributions to those plans, too, which means women could make larger contributions for an extra decade. Of course, the women must have the wherewithal to save more.

Several other options would allow workers more opportunities to accumulate earnings credits for Social Security, like letting the jobless count their unemployment insurance payments as earnings under the system or allowing caregivers to accumulate credits, too. (It's hard to see this passing muster since it would increase costs to the Social Security system.)

Other ideas would make it easier for people who move in and out of the work force or who work part time to - namely, women - to become eligible for defined contribution retirement plans, which often require workers to log about 1,000 hours during a 12-month period.

Women also tend to benefit from options like annuities that provide lifetime income, the report said, since they are more likely to live longer and outlive their spouses. So some experts recommended encouraging employers to include annuities within their defined contribution retirement plans like 401(k)'s.

There were several other potential ideas listed in the report, none of which would resolve the r etirement problem on its own. The report also underscored that the difficulties in achieving a secure retirement is a national problem, regardless of gender. In fact, much of the relative improvement in women's situations has come only because men's situations have gotten worse.

What do you think of the potential options outlined above? What sort of solutions do you think would help women and retirees as a whole?