Touchstone Television/Courtesy Everett Collection The income gender gap stretches well into retirement. At a time when work is supposed to wind down, many women may find themselves incapable of transitioning to an easier lifestyle. For starters, they simply don’t have enough money saved, a new Prudential report found, but they’re also more likely to care for a loved one or child in their older years, they don’t receive as much in government benefits (especially if they had to leave the workforce when they were younger) and they live longer, so they have to stretch the money they do have. On top of all that, women are taking on more debt -- student loan debt, mortgage debt or debt after a divorce or becoming a widow, said Janice Co, vice president and head of marketing and strategy at Prudential, and the author of the report, “Closing the Retirement Income Gender Gap.” Prudential did an analysis of its record-kept accounts for the report, as well as looked at external data from sources such as the Bureau of Labor Statistics and past surveys the company had done. “Women are in this perfect storm,” Co said. They are doing more tasks at home, they’ve got less time to even plan for retirement or to learn about savings.” Even though women need to save more money than men — because they’re expected to live longer and because they generally have higher average health care costs in retirement — female employees had less in their retirement accounts than their male counterparts (about one-third lower), according to Prudential’s report. They also are likely to be single in their older years — possibly because of divorce, widowhood or because they simply choose to be single — some 80% of men die married but 80% of women die single, according to the Women’s Institute for a Secure Retirement. Other challenges, according to the Prudential report, include the fact that women earn less, they may not have time to dedicate to retirement planning. More women were working in their mid-60s and later in 2015 (over 15%) compared with women the same age a decade before (8.6%) — they’re also more likely to end up in poverty. But there’s hope: women’s median lifetime income earnings are increasing (while men’s are decreasing) and women are expected to control a massive amount of money — they passed the halfway mark for controlled personal wealth in the U.S. in 2015, and by 2020 are expected to hold $22 trillion altogether.
Many near-retirees pay extra on the mortgage each month, avidly working toward having it paid off by retirement. Is this necessary to have a secure retirement? In some cases, yes. In others, not so much. When it comes to paying off the mortgage, a one-size-fits-all answer doesn’t work.
In general, lower income households with total investable assets of less than a million are best served working to pay off the mortgage by retirement.
Higher income households with over $1 million of invested financial assets may want to think about debt more strategically — in much the way a corporation would. Companies use debt to fuel growth. Households can take this approach also, and do it in a way that does not expose them to excessive risk.
“You are a lot better off if you can bring more money to the table through the strategic use of debt and then target a lower, less-volatile return,” says Thomas J. Anderson, in his book “The Value of Debt in Building Wealth,” which discusses the appropriate use of debt for high net worth households.
What kind of returns would a portfolio such as Anderson describes be targeting? About 6% to 7%. Obviously, the cost of the debt would need to be less than this. There are two types of debt where that is feasible in today’s low rate environment; mortgage debt on a primary residence, and a pledged asset line of credit (which is different than a margin loan) that can be established with a portfolio of invested assets as collateral. Pledged asset loans only work if you have investments titled in non-retirement accounts — IRA and 401(k) accounts, and other tax-deferred accounts can’t serve as collateral for loans.
Taxes are also part of the equation. If you itemize deductions, mortgage debt can help reduce taxable income in retirement….