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Taxes and Retirement: What Women Need to Know

Jan 05, 2021 4 min read Melanie Lockert

Key takeaways

  • Women outlive men in every country, while still earning less.
  • Various women-focused retirement strategies can help with your taxes now and in the future.
  • It's key to check in with your financial situation as your life changes.


When it comes to women and money, there are some unique challenges to consider. Take the fact that women still earn 82 cents to every dollar Opens in new window that a man makes—and that was before the COVID-19 crisis Opens in new window hit. Also consider that 40% to 50% of marriages end in divorce Opens in new window. Some women (who have the choice) are opting out of the workforce to raise families, while others are the primary breadwinners in their family. On top of all that, according to the Population Reference Bureau Opens in new window, women tend to outlive men—in every single country.



As you can see, so many factors can affect women's finances. This is why it's especially important that women take charge of their financial future and come up with a tax-savvy retirement strategy.


Retirement strategies for women

There are a variety of ways you can save for retirement, but the key is to pick a strategy and be consistent, so you can build wealth over time. Since women live longer, it's critical to start now and think ahead about your long-term financial goals. Two keys:

  1. 1. Consider tax-deferred products to lower your tax burden now

    If you're looking to reduce some of your tax burden now, look into tax-deferred products, such as IRAs and 401(k)s, as well as annuities. Using these retirement vehicles, your assets can grow tax-free until it's time to take money out of the accounts.

    Why is this important?

    The federal taxes you pay each year can take a bite out of your income both now and in the future, affecting your financial goals for retirement.


  2. 2. Take a tax-diversified approach

    This strategy involves using different types of retirement vehicles to help lower your tax obligations, whether now or in the future. For example, you can put your money in investments that are:

    • Taxed now—things like stocks and mutual funds, as well as certificates of deposit (CDs). Investing in these can have tax consequences each year.
    • Taxed later—retirement vehicles like IRAs, 401(k)s, 403(b)s and annuities. These options have important guidelines to consider and may have certain penalties if you withdraw funds early.
    • Tax-advantaged—Roth IRAs, municipal bonds and life insurance are considered tax-advantaged and have certain tax perks.

Tip: Think about your lifestyle, income, current financial goals and future financial goals when considering your investments. Do you expect your income tax bracket to be higher or lower after you retire? Does it make more sense to be taxed now or later?

Which retirement vehicles will work best for your specific situation?


A long-term plan

According to the Social Security Administration Opens in new window, a woman who is 65 today can expect to live to be 86.6 years old. Not only that, but 25% of people who are 65 will live past age 90, while 10% will live past 95.


If you're single...

You're on your own to save for your financial future. While that can have its own challenges, there are things you can do to get ahead.

The first step is to save as much as you can for your retirement, while optimizing your tax strategy. The key is to fund your various retirement vehicles consistently to reap the most benefits.

It's likely you'll want to max out your tax-favored IRA Opens in new window and 401(k) Opens in new window (or similar retirement plan) contributions, while also investing in things like taxable mutual funds or ETFs. Taking a diversified approach can help limit your risk while also getting the most out of your investments.

You also need to understand how your various investments affect your individual tax situation. Talking with a financial professional can help you figure out your best options.


If you're married…

By age 50, more than 90% Opens in new window of people in Western cultures will have been married. This partnership can be a delicate financial balancing act. You want to make sure you’re in the know regarding your finances—and that you can take them over should something happen to your spouse. Having a life insurance policy can help make sure that your bases are covered.

When it comes to taxes: Are you filing jointly or separately? It's important to know how your filing status may affect taxation of Social Security benefits, pension plans and more. All of this could affect what you owe in taxes as well as your future income.

If you’ve left the workplace to take care of your family, you may still contribute to an IRA. If you file taxes jointly, and your spouse has earned income, you can save for the future and also take advantage of some tax benefits.

Tip: Sit down with your partner to review whether you file jointly or separately. What are the pros and cons? Does your current decision align with both of your future retirement goals?


If you're widowed…

Given that women outlive men everywhere, it's not a surprise that many women could find themselves being widowed. The emotional burden alone is heavy. And dealing with all the financial issues around losing your spouse can be very challenging.

  • First, look into Social Security survivor benefits Opens in new window to see if you're eligible.
  • Check on any lump-sum life insurance payments you may be entitled to receive.
  • If you’re a beneficiary of a retirement or any other financial account, or entitled to a defined benefit pension plan survivor benefit, contact the provider to get access. It's important to figure out next steps for how you want to proceed as a beneficiary.
  • If your spouse was part of a defined contribution retirement plan like a 401(k), you’ll inherit the 401(k) unless you signed a waiver to indicate otherwise. Consider how you want the account to be distributed, and consult with a tax professional to understand how it can affect your taxes.


If you're divorced…

Remember, 40% to 50% of U.S. marriages end in divorce, so heading into retirement as a divorcee is more common than you might think. While divorce can be emotionally distressing, it can also wreak havoc on your finances.

Here are some things to consider:

  • If you were divorced prior to 2019, you must report alimony you receive as income on your federal tax return.
  • If you're paying alimony, and your divorce was final prior to 2019, you may be able to deduct the payments when you file your taxes.
  • There are other alternatives to consider, such as Alimony and Maintenance Trusts, and lump-sum payments. These options may be tax advantaged.


What you can do next

Given that so many things can change in relationships, families and lives, it's critical to build a strong foundation for tomorrow. So, assess your current retirement savings plan(s).

How are the choices you're making today preparing you to meet your financial needs for tomorrow? Identify one specific goal you have for retirement, then see what needs to happen today to set that dream in motion.

Please consult your tax and legal advisors for advice pertaining to your particular circumstances.


Melanie Lockert is a freelance writer and event planner living in Los Angeles. She is the co-founder of Lola Retreat, which is focused on empowering women with their money.


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