Retirement Insecurity: Who's Most at Risk?

If we were to ask you who faced the most financial risk in retirement from the following list, which would you choose: married women in two-income households, married women in one-income households, or single women?

If you picked ‘single women,’ we wouldn’t be surprised. After all, one income stream can be more susceptible to financial instability; it can be difficult to save as much as those with two salaries, and there isn’t a ‘back-up’ income in the event of a job loss.

But new research from the Center for Retirement Research at Boston College has found it’s a different cohort of women that’s actually the most vulnerable:

Married women living in a household with two incomes.

Yes, you read that correctly.

Women ages 50 to 59 who are earning a paycheck and whose spouse is also earning a paycheck are “at the greatest risk of not being able to maintain their standard of living in retirement.”[i]

How can this be?

Isn’t it counterintuitive?

Here’s a look at the three main reasons why.

1. Hazards of a two-income lifestyle

What we’re about to say isn’t breaking news: The more money that’s coming in, the easier it is to spend more. So, not unexpectedly, two-income households can usually afford to buy more than a one-income household.

Two cars.

A bigger house.

More expensive vacations.

Who wouldn’t want that kind of lifestyle? It’s the American Dream, after all. But research shows the more that is spent on these expenses, the less that is typically saved for retirement.[i]

And the problem doesn’t stop there.

Becoming comfortable with a lifestyle that’s funded by two incomes can become potentially detrimental if one of those incomes disappears. Think job loss, or, as many women older experience, having a spouse pre-decease them.

In either of these cases, if not enough was saved along the way, there would be insufficient savings to uphold the former standard of living, causing financial stress or a need for a lifestyle downgrade. 

2. The ‘saving less’ trap

As we just mentioned, sometimes more income can mean less of a focus on retirement savings.

This issue is compounded by the fact that only about half of U.S. workers in the private sector have access to an employer-sponsored retirement plan.

So, many times, even if a couple lives on two paychecks, there’s a chance only one of them is saving in an employer plan. And unfortunately, he or she is not saving more to account for their spouse’s lack of saving.

Here’s a look at the average 401(k) savings rate for three different types of households:[ii]

  • One-income household = 8%-9%
  • Two-income, two-saver household = 8%-9%
  • Two-income, one-saver household = 5%

As you can see, a household with two incomes but just one saver actually saves less than a one-income household!

3. Social Security’s design

Do you realize that married couples with two incomes generally pay more in Social Security taxes than a one-income household, assuming the level of income is the same?

Kind of eye-opening, right?

This is due to the design of Social Security’s rules, specifically the earnings limit ($132,900 in 2019).

For example, let’s say Mark and Sheila are a one-income household that earns $200,000 a year. Since just one individual’s paycheck is involved, collectively they’ll pay no Social Security taxes on any of the income over that earnings limit. This results in an annual Social Security tax bill of $8,240.

On the other hand, consider Anthony and Amber. Their household is also making $200,000 a year, but in this scenario, they’re each making $100,000. Two separate individuals, with two separate paychecks, means two separate Social Security tax bills.

So, even though their household income is technically the same as Mark and Sheila’s, Anthony and Amber pay more in total Social Security taxes - $12,400. Or, another way to look at it: Anthony and Amber have $4,160 less to save for retirement.

Additionally, the concept of ‘spousal benefits’ was created before many women participated in the workforce: a wife can claim one-half of her husband’s benefit, assuming the benefit on her own work record is lower. Down the road, once her husband passes, she can ‘step-up’ her ‘survivor benefit’ to his full benefit amount.

But fast-forward to today when many women are earning just as much as their husbands and a spousal benefit becomes a moot point since neither spouse would be eligible. There’s the potential for a lower survivor benefit as well.

Simply put, per tax dollar paid, dual-income households generally end up receiving lower benefits compared to one-income households.[ii]

What to do 

All women, regardless of their marital status, need to take retirement planning seriously.

We especially don’t want anyone who’s currently living a very comfortable, dual-income lifestyle to be caught off guard and blindsided at some point in the future. And there are a lot of you out there: 60% of married couples in the U.S. now qualify as two-income households.[ii] 

So, what should you do?

Plan, plan, plan.

And talk.

What we’ve found is that the couples who are the most mutually engaged and invested in the financial aspects of their relationship tend to overcome – if not entirely avoid – some of the biggest retirement planning roadblocks and challenges.

By building your retirement plan together, and by having ongoing money and retirement conversations, you’ll both bear the responsibility of your future equally. This is one of the best ways to not only retire with confidence – but stay retired.