I recently attended a seminar about financial concerns facing women in retirement. Below are seven key take-aways that I gleaned from the presentation and accompanying materials:
Income Gap-
This is the difference between an individual’s (or couple’s) total retirement income
from various sources (e.g., pension, Social Security, annuities,
dividends/capital gains, full- or part -time employment, self-employment) minus
fixed (e.g., rent and car payments), variable (e.g., gas, food, and gifts), and
occasional (e.g., insurance premium) expenses.
Social Security Stats-
About half of single women age 65+ rely on Social Security for 90% of their
income, despite the fact that it was always meant to be “a base to build on.”
The break-even
age,
when people get more in benefits by claiming at full retirement age (FRA) than
by taking early benefits at age 62, is about 12 years (i.e., at around age 78
with an age 66 FRA).
Longevity Stats-
Women typically live longer than men, with one in three living to age 95. After
age 80, the ratio of widows to widowers is 5 to 1. Some women could be retired
for more years than they worked (e.g., work from age 20 to 55 and retirement
from age 56 to 95 or even 100). This speaks to the need to save throughout
one’s career to create an adequate nest egg.
America’s 401(k)
Experiment- 2023 is the 45th anniversary of
tax-deferred 401(k) retirement savings plans that workers fund with voluntary
contributions from their pay. Baby Boomers were “guinea pigs” for the use of
401(k)s, often as a substitute for defined benefit pensions. We are just
starting to see results from the first generation relying primarily on 401(k)s
to retire.
Withdrawal Guidance-
The widely touted “4%
Rule”
cannot be applied blindly to everyone. Withdrawals from invested assets to pay
living expenses must consider a person’s risk tolerance level and age in
retirement. Older women who retire in their 70s and 80s+ can withdraw more than
4% of invested assets while more conservative women in their 60s should
withdraw less.
Portfolio Reliance Rate-
This is the percentage of retirees’ spending that comes from invested assets.
In other words, how much they rely on investments for living expenses after
accounting for other income sources such as Social Security, annuities, and a
pension. A simple formula to calculate Portfolio Reliance Rate is PRR= Expected
Spending ÷ Income Gap. For example, with $60,000 of expected expenses and a
$30,000 income gap between expenses and guaranteed income sources, the reliance
rate is 50% (i.e., half of the money for expenses from investments).
Window of Opportunity-
While women live longer than men, on average, and should plan on living longer
than they think, as well as building inflation price adjustments into future
plans, nobody has a crystal ball for how much time they actually have. Another
reality is that not all of a woman’s retirement years may include good health
and mobility. It is generally not wise to postpone important “bucket list”
goals but, rather, to front-load them to do early in retirement.
This post provides
general personal finance or consumer decision-making information and does not
address all the variables that apply to an individual’s unique situation. It does
not endorse specific products or services and should not be construed as legal
or financial advice. If professional assistance is required, the services of a
competent professional should be sought.