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Women Need to Plan For Retirement

Will you have enough money to retire?   No matter where you live on the Northshore, in towns such as Lynnfield, Peabody, Danvers or Salem or perhaps further south in Boston or Cambridge, saving for retirement is critical. Employers are moving away from contributing to retirement plans or providing pensions, so considering personal finance is more important than ever. Women, who tend to outlive male spouses, should prepare for the future and how much they will need to live on. But, how much will a person need?

commerce-acts-books-477966-mMost financial analysts use the 4% rule to help individuals and couples estimate how much is needed to save for retirement.  Under this rule, you annually look at the total of your liquid assets (exclude your home) and then spend no more than 4% of that amount; and you should outlive your money.  Since returns on investment vary over time, you must rebalance and recalculate the 4% annually.  Following the 4% rule you would have “excellent odds of having enough money for 30 golden years.”  Note, some financial planners now suggest that the 4% rule may no longer work because we are in a period of extended lower return on investment and low interest rates. Also, since women tend to live longer than men, often living more than 30 years after retirement, the 4% rule may not work.

Many of the unique concerns that women deal with correlate with the fact that they usually live longer than men. According to Forbes women outlive men by three or four years on average. Couples often plan for their retirement together and may not consider what will happen to the other spouse if one dies.  Planning this way can cause financial problems for women because they live longer than men. Women have other unique concerns when planning for retirement. Women are more likely than men to plan for their retirement future and potential money problems; while men tend to wait for a problem to arise and then respond to it  So a joint plan may not serve a widow after her spouse is gone.

Women preparing to retire today have often worked for lower pay and for fewer years than men.  Women also often worked fewer hours because they look after children, loved ones, (including their spouses) and grandchildren.  This often means that women receive smaller pensions and smaller Social Security benefits.

The Society of Actuaries (SOA) also highlights five post-retirement concerns for women.

Outliving assets. This is the key longevity issue. “Of women over 65 living alone,” SOA research says, “four out of 10 depend on Social Security for virtually all of their income.”

Loss of spouse. Because of the death of their spouse or divorce, women will tend to live alone in old age, and they are more likely to be poor. “The percentage of the female population over age 85 who are widows is more than 85 percent compared to about 45 percent for men.” SOA says.

Decline in functional status. When women reach age 65, 30 percent of their remaining lifetime will be spent, on average, with one or more chronic disabilities. For men, the figure is 20 percent.

Healthcare and medical expenses. Health benefit costs may affect women more than men since they often have lower incomes but higher healthcare costs.

Inflation. The erosion of real incomes and investment returns is another example of how longevity has a disproportionate impact on women.

Women need to plan ahead to make sure they have enough assets so that they can live comfortably after their spouse dies.   Also, as U.S. News explains, elderly women are at a more serious risk of physical and financial disabilities.  It is very important for couples to make a nest egg or have emergency funds that will only be used by the surviving spouse when one spouse passes away.

Social Security can also be strategically used to help women after their spouse passes away.  One way to increase your Social Security benefits is to work past the average age of retirement with the goal of maximizing “older-age income.”  When both spouses are alive they will each receive Social Security benefits; however, it is important to know that when one spouse dies the lower of the two benefits usually ends.  U.S. News says that “one prudent strategy is to use the lower benefit payment for non-basic expenses that could be stopped without life-changing impacts.” Putting the lower benefit into the bank or safe investment accounts would help to start the emergency fund that so many women need.

Planning for a long and happy future includes financial planning. Women need to pay particular attention to their circumstances.