It has long been argued that single women face bleaker retirement prospects than their married counterparts, but a new study has found that married women in a dual-income household may be even worse off.
The study, conducted by the Center for Retirement Research, found that while dual-income households reap more financial benefits during women’s working years, married women in their 50s are more likely to face hardships in retirement than any other group of women. That includes women who are widowed, divorced or even in a single-income household.
The CRR looked at a households’ projected income replacement rates and compared that number with what a household would need to maintain its standard of living after retiring. CRR calls that percentage the National Retirement Risk Index, and the results are surprising.
According to the study, 46% of women ages 50 to 59 that brought in money along with their spouse were at risk of not being able to maintain their standard of living. That’s higher than married women in single-income households (32%) and single women (39%).
There are a few factors that lead to this number. For one, while two-income households typically make more money, they also don’t save as much, according to InvestmentNews. Households with two breadwinners also face bigger Social Security tax penalties, leading to getting a smaller benefit-per-dollar of taxes paid.
Research by Pudential Insurance Co. found in a companion study that a lot of times, only one spouse is saving for retirement in a dual-income household, and they aren’t saving extra for the other spouse.
Single-income households save around 8% to 9% in a 401(k), while dual-income households with only one saver averaged 4.9%, according to the CRR. These households represent about 42% of the number surveyed, and the CRR found that the spouse that isn’t saving would have to put 16% of their income into a 401(k) to match the savings rate of a household where both earners save.
That’s not even taking into account the Social Security tax implications of having two earners in a single household. Taxes on Social Security benefits are capped once an earner hits at least $132,900, so if you can make more than that you are OK. But what happens when you have to split those earnings between two people? InvestmentNews did the math:
If a one-income household earned $200,000 this year, its Social Security tax bill would be $8,240 ($132,900 x 6.2% payroll tax rate for employees.) But if a two-income household earned the same $200,000 split evenly between each spouse, all of their earnings would be subject to the Social Security tax for a total of $12,400 ($100,000 x 6.2% x 2).
The tax penalty for two-income households can be even worse if one spouse is a self-employed independent contractor. In that case, he or she would have to pay both the employee portion of the Social Security taxes and the employer share, for a combined tax rate of 12.4%. A two-income couple with $200,000 of income evenly split, where one spouse was self-employed, would have a total Social security tax bill of $18,600. That’s $10,360 more in Social Security taxes than the one-income household would pay.
If that couple paying an extra $10,360 in Social Security taxes was instead able to invest that sum each year for 35 years, earning a 6% annual return, they would accumulate an extra $1.15 million for retirement.
And it doesn’t end with taxes. Women in dual-income households may only be eligible for the same benefits as their single-earner counterparts.
A wife is eligible for a spousal benefit equal to one-half of her husband’s benefit if the benefit she earned on her own work record is lower than one-half of her husband’s benefit. In contrast, a woman in a two-income household who earns about the same as her spouse will not receive any Social Security spousal benefits and potentially no survivor benefits either.
