Taxes And Retirement: What Women Need To Know

When it comes to women and money, there are some unique challenges to consider. Take the fact that women still earn 82 cents to every dollar that a man makes – and that was before the COVID-19 crisis.1 Also consider that 40% to 50% of marriages end in divorce.2 Some women (who have the choice) are opting out of the workforce to raise families, while others are the primary bread winners in their family. In addition, women tend to outlive men.

As you can see, so many factors can affect women’s finances. Therefore, it is especially important that women take charge of their financial future and come up with a tax-savvy retirement strategy.

There are a variety of ways you can save for retirement, but the key is to pick a strategy and be consistent.

  • Consider tax-deferred product to lower your tax burden now. If you’re looking to reduce some of your tax burden now, investigate tax-deferred products, such as IRAs and 401(k)s, as well as annuities. Using these retirement vehicles, your assets can grow tax-free until it’s time to take money out of the accounts.
  • Take a tax-diversified approach. This strategy involves using different types of retirement vehicles to help lower you tax obligations. This approach would include stocks, mutual funds, IRAs, 401(k)s, municipal bonds, etc.

Think about your lifestyle, income, current financial goals, and future financial goals when considering your investments. Do you expect your income tax bracket to be higher or lower after you retire? Does it make more sense to be taxed now or later?

Creating a plan

According to the Social Security Administration, a woman who is 65 today can expect to live to be 86.6 years old. Not only that, but 25% of people who are 65 will live past age 90, while 10% will live past 95.3

  • If you’re single. The first step is to save as much as you can for your retirement, while optimizing your tax strategy. They key is to fund your retirement vehicles consistently to reap the most benefits.
  • If you’re married. By age 50, more than 90% of people in Western cultures will have been married.4 Marriage can be a delicate financial balancing act. You want to make sure you’re aware of your finances – should there be a need to take them over. When it comes to taxes, it is important to know how your filing status could affect taxation and Social Security benefits, pensions and more. All of this could affect what you owe in taxes as well as your future income.
  • If you’re widowed. Given that women outlive men, it is not a surprise that many women could find themselves being widowed. The emotional burden alone is heavy. And dealing with all the financial issues around losing your spouse can be very challenging. From life insurance policies payouts to Social Security survivor benefits to retirement plans – you may want to speak with both your tax professional and financial advisor to best understand and navigate your options.
  • If you’re divorced. Remember, 40% to 50% of U.S. marriages end in divorce, so heading into retirement as a divorcee is more common than you might think. While divorce can be emotionally distressing, it can also wreak havoc on your finances.

If you’re ready to create a retirement income plan designed specifically for you, we invite you to download Women and Wealth: A Guide to Retirement Planning.


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