Women and Retirement Income: Failing to Plan = Planning to Fail

American women are thinking about retirement, but many are without solid retirement or retirement income plans. In March 2016, Transamerica’s Center for Retirement Studies released its 16th annual retirement survey which found eliminating debt and paying bills is a higher priority for many American women than saving for retirement.  

The survey indicates only 29 percent have made retirement savings a focus and only 12 percent of women are “very confident” in their ability to fully retire with a comfortable lifestyle. The lion’s share of women, 56 percent to be exact, plan to retire after age 65 or not at all.

Given these findings and other extensive research conducted to analyze women and retirement in America, this failure to plan almost seems like a sure plan to fail.

As an advisor, you have the opportunity to help your female clients plan for a financially secure retirement, but you must consider these clients' unique position.

Addressing the Planning Challenges of Female Retirees

The fact that women live longer than men has been well documented and widely reported. According to a study by OppenheimerFunds, 93 percent of boomer women said saving for retirement was their primary goal. However, 83 percent of women over age 50 do not have a retirement plan, according to a study conducted by the University of Michigan. And a successful retirement plan accounts for building sustainable retirement income that lasts or even outlives female retirees.

While research indicates females place tremendous importance on planning for retirement, less than one-in-three surveyed had even attempted to calculate the amount they would need to save for retirement. Both the Oppenheimer and Michigan studies echo new research conducted by the National Institute of Retirement Security that reported 85 percent of Americans remain highly anxious about their retirement outlook. Since women represent three-in-four Americans over age 65 living in poverty, their concern is warranted. Arguably, the need exists for creating and managing a retirement income plan more now than ever before.

This lack of adequate retirement planning offers financial professionals significant opportunity to connect the dots between specific retirement income options and challenges that women face, and to craft an effective plan of action.

Advisors Can Harness the Opportunities of Female Retirement Planning

On a positive note, women-owned capital has grown tremendously. The Internal Revenue Service reported that in 2004 (the most recent year for which data is available) that women represented 43 percent of the nation’s most prosperous individuals. Projections by the Boston Consulting Group place two-thirds of U.S. investment wealth in the hands of women by the year 2030. While statistics touting the rising prosperity of American women have been widely reported, the significant and pervasive financial risks that threaten many American women have not been.

Encouraging female clients to think about retirement planning early, offering sophisticated strategies for creating and managing retirement income streams, and solidifying a retirement plan that meets their diverse retirement needs can result in significant benefits — for both female clients and their advisors.

Tips for Crafting a Sustainable Retirement Income Plan for Females

Compared with their male counterparts, women share five heightened risk areas that advisors need to know about. With a deep understanding of tax management strategies, retirement income planning, wealth management and strategic asset allocation, advisors can differentiate their services and make lasting, positive differences for female clients.

1. Increased Life Expectancy - According to the National Center for Health Statistics, women live an average of 5.3 years longer than men. With an increased life expectancy comes an increased need for reliable sources of lifetime income, as well as the heightened probabilities of singlehood and a potentially disabling illness.
   
   Advisors who quantify the economic impact of a decades-long retirement can help female clients circumvent a devastating financial situation. One tool that’s useful when helping prospects and clients better understand their longevity potential is the www.livingto100.com life expectancy calculator. It asks 40 questions and then calculates retirement income requirements for financial professionals to use when designing an income distribution strategy.
   
   
2. The Pay Gap and Lower Lifetime Earnings - The Bureau of Labor Statistics (BLS) reports that females in the U.S. generally earn about 80 cents on the dollar when compared to males. Combine that with the fact that women take, on average, 12 years out of their working lives to care for children and/or parents and it’s easy to see why many women have lifetime earnings that are lower than one may expect. In 2009 The U.S. Census Bureau reported a 40 percent disparity in the average total retirement income between American women ($22,625) and American men ($38,754).
   
   Since lower lifetime earnings translates into reduced Social Security Income (SSI) benefits, lesser retirement savings and pensions, advisors must know how to address these needs with retirement income strategies that help mitigate the consequences of this reality.
   
   
3. Single-earner Syndrome - According to the Social Security Administration (SSA), women are more than twice as likely as men to be alone in their later years. Whether due to widowhood or another reason, this heightened risk from the absence of a second-earner is real. The SSA reported that in 2007 more than 28 percent of single women over age 65 were classified as “poor” or “near poor,” with the number of impoverished widows over age 65 jumping to 17 percent — more than four times the number for married women.
   
   Advisors can help their younger female clients by encouraging them early in the planning stages to consider the high probability of singlehood, living alone and the importance of having an independent source of income from pensions or other assets.
   
   
4. Widows Are at Especially High Risk - One troubling fact found by The U.S. Census Bureau is that 80 percent of widows living in poverty were not poor when their husbands were alive. Advisors must both understand and analyze the impact of survivor benefits from Social Security and pensions. They also need to engage both spouses — not the husband or wife individually — when planning for retirement to ensure adequate survivor income is in place.
   
   
5. Long-term Care - Women are faced with a sort of double jeopardy when it comes to long-term care needs because they are significantly more likely than men to be both the caregiver and receiver. According to a 2011 report, the economic cost for the average female caregiver — between lost wages, reductions in Social Security and pension benefits — is estimated to be $324,044, enough to implode even the best-laid retirement plan.
   
   Advisors should ask their female prospects and clients about their potential for becoming a caregiver and help them analyze their potential for needing care. Not only can this open the door to a bigger discussion regarding long-term care needs, it will also help them begin to think proactively about the possibility of needing care. As reported by a Securian study, 84 percent of female caregivers made no long-term care plans, until care was actually needed. Advisors can positively impact this statistic by encouraging female clients early in the planning stages to analyze their potential for needing long-term care, its costs and impact on retirement security.  
   
   
6. Financial Literacy - Americans’ lack of retirement planning knowledge has been confirmed by academic and industry studies for years. But one study found that women were almost three times more likely than men to fail basic financial literacy quizzes. An area where women’s knowledge was lacking significantly? Financial products. Annuities, mutual funds and long-term care insurance are all products about which females have indicated minimal understanding or a complete lack of knowledge.
   
   The opportunity for advisors to educate their clients about investment products is tremendous. Addressing your clients’ level of financial literacy early on and educating them about various investment products and strategies can help fight the risk of poverty during retirement. While educating female clients is a key component to effectively preparing them for retirement, advisors must avoid talking down to women when providing education about retirement risks This is a common complaint expressed by women investors and is counterproductive to even the most well-intentioned efforts.  

The retirement risks and needs of women are different than those of men. Advisors with comprehensive retirement income expertise are positioned to be a valuable asset to female clients who face such an array of risks as they approach and enter their retirement years.

To gain deeper insight and learn how to create comprehensive financial plans that meet your female clients’ diverse needs, check out "Planning for Retirement in a Rising Tax Environment".