Women live longer than men.

Everyone knows this.

So women need more money to retire, no matter what. With an increasing number of women entering their 60's single, divorced, or widowed, this is starting to look like a real problem. Unfortunately, Social Security makes the problem worse by stacking the deck against single workers.

We're not talking small change. By my calculations, being a single woman worker requires an additional $82,500 to $245,000 in savings over being married. This is a direct result of the Leave It To Beaver family assumptions built into the Social Security benefit structure.

To understand how this happens, follow me on the question trail started by two women readers.

Responding to a recent column on retirement planning, Eileen asked: "Since there are so many single and divorced women today could you add a footnote… on what figure to aim for, or additional things women should do to secure their retirement?" 

Beverly put the question another way: "Please explain 'basically, you need about 16 years of final pay (in savings) to retire.  Social Security is good for six or seven years of that, so your actual target is around 10 years of final pay.

"So if I make $50 thousand a year, my goal is $500 thousand in my savings…" 

Both women were referring to some rough rules of thumb used by Dallas benefits attorney Brooks Hamilton when he talks about improving 401(k) plans so workers can retire with dignity. (See "Saving Up Slice by Slice", Sunday, February 15, 2004) A life annuity, for instance, can be purchased at age 65 for about 16 times what it will pay in annual income. That's a very rough measure of how much you need to replace your earning power: 16 years of final income.

Social Security is also a life income. It will replace 23 to 44 percent of final pay for most workers. It replaces more for low-income workers, less for high-income workers. A typical worker can expect Social Security benefits equal to about 40 percent of final pay. Using Hamilton's shorthand, that's the equivalent of about 6 of the needed 16 years.

To make our personal plans, however, we should be a bit more precise.

We can do this by checking some regular research on replacement income requirements done at Georgia State University. According to their study, last updated in 2001, a 65-year old single worker earning $50,000 needs to replace only 74 percent of pre-retirement income.

The researchers get to this figure by adjusting for payroll taxes, lower income taxes, work related spending, and the elimination of regular savings. As a consequence, a single worker earning $50,000 only needs about $37,000 as a retiree.

The researchers also estimate Social Security will provide nearly $16,000 a year in benefits for the $50,000 single worker.  That leaves $21,000 that must be replaced from personal savings. Since you can safely make nest egg withdrawals in the range of 4 to 5 percent a year, this implies a nest egg of $420,000 to $525,000--- in the ballpark with Mr. Hamilton's rule of thumb.

The Georgia state research project assumes that you live almost exactly as you did before retiring. If you move to a lower cost area or to a lower cost house the nest egg requirement can be drastically reduced.

Single women, however, get a surprise when you compare how much income a single worker will have to replace from savings compared to a married worker.

The single $50,000 worker can expect Social Security to replace 32 percent of final income at retirement.  Social Security will replace 44 percent of a married workers' final wages for a one-earner household. This happens because the non-earner in a couple can collect retirement benefits based on his or her spouses' earnings record. The extra benefit is smaller for a married couple with two earners.

If you get more money from Social Security, you don't need as much money from your personal savings.  More income from Social Security means married couples can save less than single workers, many of whom are single women.

A single woman earning $50,000, for instance, will need to draw 42 percent of her pre-retirement income from her savings. A single earner married couple will need only 32 percent. The 10 percent difference is $5,000 a year.

That, in turn, means the single woman needs to save $100,000 to $125,000 more than a single earner married couple.

The table below shows the additional savings required at different levels of family income from $30,000 to $90,000.

The Single/Married Couple Nest Egg Gap
This table shows the percent of income that must be replaced from personal savings for single and married workers by income level. The additional nest egg required is then calculated by multiplying the income difference by 25, reflecting a 4 percent annual withdrawal rate.
Income level  $30,000 $50,000 $70,000 $90,000
Marital Status Percent of Income To Be Replaced from Savings
Single, age 65 38% 42% 56% 61%
One Earner Couple, age 65 and 62 27 32 42 51
Difference 11 32 42 51
Additional Nest Egg Required for Single Retiree, in Percent 11 10 14 10
Additional Nest Egg, in Dollars $82,500 $125,000 $245,000 $225,000
Data source: 2001 GSU/AON RETIRE Project, Georgia State University

On the web:

"Saving Up Slice by Slice", Sunday, February 15, 2004