“Response to the COVID-19 pandemic has upended nearly every working person’s retirement plans. However, women in the workplace may have taken the biggest hit.” Donna McElroy
As the COVID-19 pandemic winds down, governments, financial experts, and employees are scrambling to get a handle on the extent of the economic devastation.
Job losses, rising inflation, and decreased productivity are the most apparent symptoms of an economy in free-fall, weakened by pandemic-related government actions.
However, a lesser-known consequence of the pandemic is that millions of employees who lost their jobs also lost their employer-sponsored retirement plans. Those who did manage to hold on to their jobs may have experienced pay cuts which caused them to cut back on retirement savings. Or, they may have experienced eliminating or reducing employer matching funds critical to retirement plan growth. A worsening economic situation also forced some employees to tap into their retirement plans to survive, a problem likely to haunt them when they retire. Multiple surveys indicate that as many as 35% of working Americans say they will need to delay their retirement to make up cash shortfalls.
It’s even worse for women.
In 2022, there will be 4.5 million fewer women working than at the beginning of the pandemic. This loss of jobs results primarily from layoffs, closures of women-owned small businesses, or being forced to stay home with their kids when schools and daycare centers closed. When these women were at home, they missed out on promotions, training, and seniority. Studies indicate that such missed opportunities have long-term consequences, such as a lifetime of lower wages. The Center for American Progress says a woman earning a median salary of around $47,000 pre-pandemic returning to work in 2022 might lose as much as $250,000 over her lifetime!
An economy on the fritz is challenging for everyone, but it’s particularly devastating to women. For example, on average, women earn less than men. That means that they typically save less and get smaller Social Security checks. Statistically, women live longer, so their savings must last longer as well. And although not all women have issues with risk, many older women worry about exposing their wealth to risk to get higher returns. The more risk-averse women tend to gravitate to CDs and bonds, both of which currently offer abysmal returns.
Fortunately, there is another low-risk savings product, the fixed index annuity, that women often overlook. Fixed-index annuities have the potential to build wealth much faster than other safe money vehicles while guaranteeing the safety of your principal. Annuities are guaranteed by the issuing company and are further backstopped by state guaranty associations with protection levels that vary by state.
Not only does a fixed-index annuity typically give you a higher rate than a CD or bond, but it also has tax advantages that allow your money to grow more quickly. Even when a woman owns an IRA or 401k, adding a fixed annuity can provide more peace of mind. When the time comes for you to stop working, you can convert your annuity to a guaranteed income stream to last your entire lifetime. In effect, by adding an annuity to your retirement blueprint, you have in effect created your own pension plan.
Indeed, annuities aren’t suitable for every woman. However, if you are over 50 and concerned about running out of money in retirement, they can benefit your financial plan.
An annuity might also make sense for women who want reasonable returns without exposing their money to risk or want to plan for long-term care or leave a legacy to children or grandchildren. If this is your situation, you should meet with a safe money and income specialist as soon as possible to explore your options.