You might be forgiven for thinking that most women are living the dream and enjoying their golden years carefree. However, studies have shown that more women retire with credit card debts, loans and mortgages. There are several reasons the financial effects of retirement debt may fall hardest on women, who despite decades of progress still earn less compared to the average man’s wage for the same work.
Read how accumulating debt can destroy your golden years as a woman and actionable ways to stave off financial doom in the future.
Women and Debt: A Different Emerging Problem
Debt is a challenge for everyone, but it can hit women differently and affect them more negatively than men especially in retirement. They receive less total pay over their careers and the gender pay gap will ensure women do not keep pace with men. This gap has not begun to measurably close yet, and a report by the Fawcett Society estimates that it will not do so until an entire generation later, in 2051. The amount accumulates and means that women are frequently less well-placed to put money aside for retirement, leaving them with even fewer funds to meet these debt repayments.
There are far more women who take breaks in their careers or work part-time for childcare or family caregiving reasons (whether it is childcare with children and elderly relatives). That results in career breaks, which means lower pensions and savings for women on the approaching older age.
The Sneaky Way Debt Happens to Women Before Retirement
Debt is not created in one night. For most women, it grows over time due to a number of factors; they are likely to have taken on loans for family needs or making home improvements, paying university tuition fees for children etc. Credit card, personal loan and mortgage debt can appear manageable while you are still working but can easily become too much to service on a reduced retirement income.
Moreover, women especially single mother or widow, end up borrowing to pay-off unforeseen expenses – medical emergencies, house repairs and other emergencies. Basically, you can end up retiring with financial burdens that need to be paid for on an income that has become fixed.
The Cost of Creditscore for Women in Retirement
Women are also particularly vulnerable to the negative effects of debt in retirement, as it can have a huge impact on their quality of life both financially and emotionally. The problem is that too many women are exchanging their dream retirement, a life full of travel and leisurely pastimes or quality time with loved ones, for an existence where they feel forced to work longer than they would like just to settle debt before beginning their golden years.
Credit Card Debt
Credit card debt is a common retirement financial woe for women. With high interest rates, the debt can snowball out of control but when the only payment that fits their budget is a minimum one, women get stuck in a cycle where it feels like paying off their credit cards will take forever.
Mortgage Debt
In the UK, mortgage debt later in life is an increasingly common scenario and one which many women will continue to experience as they enter retirement years. Though owning a home can and already does seem like more of an asset than ever, having a mortgage during retirement can cripplingly lock up your cash. It is especially difficult for women who have seen their partners pass away or are living alone in later life.
Personal Loans
It could be for anything from a home renovation, taking care of children or grandchildren to just personal use. No doubt these loans are often needed at the time, but they can further compound the financial situations when retirement starts and your income stagnates. When you all add the everyday living expenses onto these financial commitments, it potentially quickly would become unbearable.
Reasons Women are at a Higher Risk of Debt in Retirement
A lot of factors play into why women are more susceptible to the consequences of debt in retirement.
Wage Disparity
Factors including the gender pay gap, women being more likely to work part-time and in lower-paid jobs, all add up to reduced pensions over a career for women. The result is that there are less savings, a smaller pension and more debt to pay off in their later years of life.
Caregiving Responsibilities
We still live in a sexist society, but because of that fact…women are much more likely than men to become caregivers (either for their own kids or by providing care for an elderly relative.) That frequently means interrupted careers or fewer hours worked, and therefore lower paychecks and less going into a retirement nest egg. Moreover, caregiving usually means out-of-pocket costs, so you run the risk of going into debt.
Longer Life Expectancy
Women tend to outlive men and therefore are more likely to need their money to last over a longer stretch of retirement. Long retirements increase the risk that you will run out of money, making debt management even more vital.
Divorce and Widowhood
Many women are exposed financially after a divorce or bereavement, particularly if they have always relied on their partner’s income. An example can be mortgage debt; loan or overdraft taken out in joint names.
Debt and Your Mind: The Emotional Strain on Women
Not only does the debt impact your finances, it also affects your mental health and emotional health. Shame, embarrassment or anxiety can feel incredibly overwhelming for women in general, but if you are also a woman from the generation that is just retiring, unable to get over these feelings may lead you into exhausting madness. That can result in sleepless nights, depression and tension within family relationships.
Women frequently care for others while they consider their emotional needs last, thus leading to delays in seeking for help. It is important to ask for help early before your debt accumulates and become a problem. Do not try to be a superwoman!
What Women Can Do to Deal with Debt in Retirement
While the challenges can appear insurmountable, there are several practical steps that women can take to deal with debt as they retire.
Understanding Your Financial Status
To begin, make sure you know where your money is going. Make a household budget map. Write down all your debts, also noting the interest rate and monthly minimum payment for each one. Next look at your pension, saving and any other income sources. So that you can get a more accurate idea of what you are operating with and plan accordingly. Read our article on Financial Wellness in Retirement: Building Security and Peace of Mind for more tips.
Prioritize High-Interest Debt
Focus more on paying off high interest debts like credit card balances. The interest savings increases the the household budget for other uses.
Create a Budget
Decide on Realistic Budget Numbers Based on Current Income and Expenses. Watch your expenditures and find savings where you can, so extra money goes towards paying down debt. You may need to make some lifestyle sacrifices (ie less spending on the discretionary, downsize the home).
Explore Debt Consolidation
With many high interest debts, you may have difficulty keeping up with several payments every month. Consolidating your debts with a loan or balance transfer to a credit card that comes with lower overall costs may be right for your situation.
Get Professional Financial Advice
Speaking with a financial adviser or getting professional debt counselling may offer you valuable advice. They may also help you create a plan to pay off your debt, point out where you can negotiate with creditors and list other sponsored or entitled consumer resources that the government offers.
Consider Downsizing
If you have a mortgage and want to retire debt free, selling your house & buying something smaller is a good way to extract the equity in your property and avoid monthly mortgage payments. This could also reduce your overall cost of living too which means you have more room to breathe and tackle the rest of your debts.
A Woman’s Guide to a No-Debt Retirement
Across the board, debt is one of the biggest silent killers to our financial freedom and women are no exception. However, armed with the right plan of action, you can get your control back and make sure that your debt is a thing of the past by the time you retire. It is never too late to start so if you are at your wits end with debt and struggling to get by with making payments, The MoneyHelper offers free advice on managing debt. By addressing debt aggressively, you can create a future in which your retirement is more secure and debt free; a period where you truly reap the rewards of decades of employment.
Join the conversation: We would love to hear from you and your thoughts on managing debt in retirement, especially as a woman!
