When we address the topic of the biggest threat to a woman’s retirement, do you want the good news or the bad news first?
This isn’t a trick question so I’ll start with the good news: It’s longevity. That’s actually better than good news. In fact, it’s great news. Women are living longer and longer, and longevity is redefining retirement for women.
Now, for the bad news: Women are living longer. And with longer lives comes the need for more money for retirement. That’s really bad news.
With that said, our biggest threat to retirement is no longer market volatility, or taxes, or inflation.
Of course, these are truly retirement risks in a traditional sense, but longevity is magnifying these risks in proportions that we are yet to understand as individuals, and as a nation.
We’re consistently hearing reports that the fastest-growing segment of the U.S. population is the 90-plus group, and I’m here to sound the alarm. Although both men and women are living longer, women historically outlive their spouses/partners.
According to the US Census Bureau, 80 percent of women outlive their spouses, and often by as many as 14 years. And we consistently read demographic research reports that suggest the majority of the elderly poor are women.
This is why I have come to the conclusion that a woman’s greatest risk is longevity. And this is why I am sounding the alarm: Plan now or pay later.
If we are to change the statistics about the elderly poor being women, and the fact that the majority of residents in skilled nursing facilities are women, we need to create life plans that have all the appropriate costs embedded in them.
Those plans need to take into consideration the traditional retirement risks such as market volatility, inflation, taxes and add to these risks the risks of longevity.
Why do you ask?
With longevity comes longer periods of active lifestyles; greater potential for suffering debilitating illnesses that create unanticipated healthcare expenses; increases in Medicare premium.
One of the greatest costs to a long retirement – skyrocketing health care costs, including routine medical, dental and vision costs, along with skilled-nursing care.
I have personal experience with the impacts of longevity on women’s lifestyles. My mother was widowed at 62 and she lived to 93 without a plan.
She was dependent on me for her financial support, her healthcare needs and long-term care needs. Now that’s retirement risk! She and my father didn’t plan, and I paid.
Because of my personal life experience with longevity in my family and the financial needs required to age with grace and dignity, I have made it my life’s mission to make sure no individual or family has to deal with the devastating financial, emotional, and physical demands due to poor planning.
So how do you navigate the threat of longevity if you’re going to live in retirement three, four, or maybe even five decades?
The last place you want to be in your late 70s, 80s or 90s and beyond is flat broke. Or, as many of the women I serve say, “I don’t want to end up eating cat food.”
One of the best ways to address the longevity risk is to ensure you have a fully integrated lifetime income plan – a retirement lifestyle protection plan that allows you to put a cost to your lifestyle using various “what if” lifestyle scenarios such as:
- What if I prematurely lose my job before I planned to retire and I can’t find another job?
- What if we lose a source of income due to a disability, the death of one of us?
- What if one of us needs skilled nursing care and we don’t have adequate long-term care insurance?
- What if we spend our retirement assets on one of our debilitating healthcare needs, and then the survivor has lost income AND spent a fair share of the financial resources on the decedent’s care?
- What if we want to age in place and bring the care in the home and need to ready the home for our elder years?
- What if we need to relocate to be closer to family and want to transition to Continuing Care Retirement Communities and the state now has a state income tax that nips away at our income?
- What if Medicare premiums continue to skyrocket and pension checks and Social Security income does not keep up with rising healthcare costs?
- What if………………………………..?
Now you fill in the blanks. In order to create a lifestyle protection plan that will give you a predictable journey to and through retirement, you must understand the financial impacts of these life scenarios.
Retirement is a serious journey and you don’t want to be a victim to poor planning. In fact what I see far too frequently is that women invest more in their children when they experience life events than they invest in their own planning.
How much time did you spend planning your son’s or daughter’s wedding, which is a one-day event? Compare that to you’ve spent planning your retirement journey, which could be a 30 to 40-year event.
The average person, both men, and women are not at all prepared for longevity and the financial impacts of a long life. I have spent the last two years interviewing active people who are 90 and older and I will soon be releasing a book that talks about planning for a purposeful life based on what can be learned from the greatest generation.
If I had to summarize on two key revelations from the more than 30 interviews it would be this: (1) Doesn’t retire from something without going to something – purpose is what allows them to live active lives. (2) Don’t retire without having the financial resources to fulfill your dream retirement.
So, how do you do this? Here are some tips I’ll leave you with that should help you as you ponder the next phase of your life:
- Know your expenses: Not only the cost of today’s lifestyle but also adjusted for inflation. The average inflation since World War II is a little over 3 percent. This needs to be factored into your retirement plan and creates the cost of your retirement from now until the day you walk out on life. And, don’t forget to consider things such as home maintenance costs, how many cars you could potentially need to buy, cost shifting out of the Medicare system to you as a healthcare consumer, how you will fund dental, vision, hearing expenses throughout your life stages. These are simply examples, but you get the picture.
- Know your fixed income sources: Get real about your fixed income. Understand when the most appropriate time is to claim your Social Security payments since claiming Social Security is not a magical age or date; know how to protect your spouse/partner if you’re counting on two incomes and you lose one, etc.
- Know how you’re going to replace lost income: It’s essential you have a plan for any of those unexpected and premature life events (widowhood, divorce, etc.)
- Know how you want to receive long-term care: The costs associated with skilled nursing care average about $92,000 annually. Are you prepared should you need skilled nursing care? Have you to have the conversation about this “unspoken” issue?
- Assess all of your insurance policies: We want to make sure you have insurance protection to achieve your life goals; you don’t want to be sold insurance contracts without having them directly linked to your personal goals. Understand the value proposition and the cost of ownership. Evaluate every life insurance policy, long-term care policy, health insurance, property and casualty insurance, annuity contracts. Are these policies value added, how do they meet the goals of your retirement lifestyle protection plan, and are you over-insured, under-insured, or have the wrong policies?
- Understand your tax situation: Do you know the tax impacts of using your 401(k), your IRA, and have you saved money in taxable accounts that allow you to create income in a tax-efficient manner? Or do you have a tax time bomb waiting for you as you begin your retirement journey? Remember, Medicare premiums are income driven so if you use more of your tax-deferred assets, you could be paying more in Medicare premiums, and more of your Social Security income will be taxed. Your CPA should be a tax planner, not simply a tax preparer. Ask the tough questions of the investment advisor to make sure your money is being invested in a tax-inefficient manner.
- Understand cost of ownership and risk of your investments: If you don’t have a goal-oriented investment strategy that is linked to retirement income goals, tax efficiency, low fees (even the hidden fees you don’t see on your statements), and managed risk, you might be in for a wild ride through your retirement journey. All of your financial assets should be working together towards your retirement goals; a group of different financial statements is not the definition of diversification. Investing should be life-stage-oriented. Investing like you were 35 years old when you’re only a few years away from retirement may not be appropriate given your life goals.
It’s all about protecting your retirement lifestyle, a lifestyle you’ve spent 30 to 40 years dreaming about and saving for. A fully integrated life plan is important because retirement is more than the money – it’s about purposeful living and total well being.
About the Author: Jeannette Bajalia, the author of Retirement Done Right and Wi$e Up Women, is president and principal advisor of Petros Estate & Retirement Planning, where she has designed and implemented innovative estate planning solutions for clients and their families. She also is founder and president of Woman’s Worth® (www.womans-worth.com), which specializes in the unique needs facing women as they plan for their retirement