This article was originally published in Project M, an Allianz SE International Pensions publication featuring unique perspectives on investments and retirement.
Last March, Andrea shut the door of her marital home for the last time. The house’s four walls meant more than mere bricks and mortar to the fifty-six year old housewife and mother of two teenagers.
This is where she had celebrated twenty years of family birthdays, Christmases and witnessed important milestones in her husband and children’s life. She had looked forward to spending her old age enjoying the results of her hard work decorating the house and tending to the garden.
Andrea’s bank, however, had other ideas. The widow was no longer able to meet mortgage repayments and debts were piling up since her husband had died the previous summer at the age of 72. She had no choice but to put her beloved Munich home up for sale, sell her furniture and much of her belongings and rent a small flat out of town.
Andrea had dismissed concerns about the age gap between her and her older husband when they married. He had handled their finances so she hadn’t considered how she would provide for herself in the event of his death. Once widowed, she continued to spend in the style she was accustomed until there was little left.
The Younger Wife's Curse
Sadly, Andrea isn’t the only woman left poor and lonely following their husband’s death. Older women are at greater risk of poverty in 27 out of 30 OECD countries, where the poverty rates are 15% for women and 11% for men, according to The Younger Wife’s Curse, a report published by PROJECT M.
Researchers have shown that the change in marital status from married to single is one of the most important factors influencing the likelihood of poverty for older women. And the most common change of marital status older women experience is widowhood.
Indeed, “The single most important factor in determining a woman’s financial security in old age is being without a husband,” Alicia Munnell, director of the Center for Retirement Research at Boston College in the United States, states in the report.
Women are more likely to be widowed than men for two reasons, the report explains. First, because they live longer – women outlive men by an average of four to seven years.
“A woman born today can expect to live for 80.42 years, while a man on average lives 73.41 years.” Second, men tend to marry younger women, which can ultimately increase the number of years a woman spends in widowhood after the death of her spouse.
Further evidence of the influence widowhood can have on the financial status of women was found in The 2013 Allianz Women, Money, and Power Study
. Interviewing more than 2200 women between the age of 24 and 75, the report, which focused on women’s changing attitudes to finance, found that 61% of widowed women said their spouses’ death created a personal financial crisis.
What can women do to avoid long lean years ahead? Working for as long as possible seems to be the best approach. Having a job isn’t necessarily a safeguard against poverty, however.
“The pension outcomes for women are currently significantly lower than for men,” the report quotes. Women generally have to work for lower pay than men and often spend years outside of the workplace looking after children and elderly relatives, which all adds up to a lower pension.
Women who haven’t worked see their income fall dramatically if they lose their spouse, due to loss of pension income and other factors such as lower Social Security benefits. What makes it worse is that, like Andrea, many women leave the financial and retirement planning to their husbands so once alone have little idea about money matters.
According to research by Professor Olivia S. Mitchell, professor of insurance and risk management at the Wharton School of the University of Pennsylvania and director of the school’s Pension Research Council, “older women in the United States display very low levels of financial literacy.
Moreover, the large majority of women have not done any retirement planning calculations. Further, financial knowledge and planning are closely related: women who display higher financial literacy are more likely to plan and be successful planners.” (Planning and Financial Literacy: How do Women Fare?)
In an environment where individuals rather than employers and governments handle retirement finances, it is essential that women become more financially savvy to enjoy a successful retirement, Mitchell adds.
What of the future? Women in the developed world are likely to be more educated than their mothers. They are also likely to work longer and enjoy far greater financial independence than their grandmothers, so can contribute to their own pensions.
As The 2013 Allianz Women, Money, and Power Study found, at least in the United States, the financial crisis was a major wake up call to many women. Some 68% of respondents have become more actively involved in their financial planning, retirement and investment decisions since the crisis.
Today’s younger wives, it seems, have a far better chance than their mothers and grandmothers of securing their financial future. Yet, younger wives who have married in more recent years face new threats to their prosperity in later life.
Recent pension reforms will affect everyone, but as a recent EU pension adequacy report notes, “men and women are affected in distinctly different ways.”
Apart from generally reducing benefits, the reforms have moved pension systems away from a collective insurance approach to one where the individual takes greater responsibility and risks.
Few people in the first bloom of their married years want to turn their financial thoughts to retirement. Yet, young women – whether married, single or somewhere in between – will be doing themselves a disservice by not being aware of these trends and taking steps against the implications they may have for their future happiness.