A Special Note to Women: Part 1

By: Tom Hegna CLU, ChFC, CASL

While we all face risk with our retirement income, overall, women are subject to more financial risks than men, especially in their later years. Women have several unique challenges, including an average longer lifespan than men.

“The average woman on the planet can expect to live about five years longer than the average man.[1]

Despite the retirement challenges women are facing today, there is a silver lining! There are a number of ways for women to overcome the various financial challenges and achieve the optimal amount of income for their retirement. By identifying the risks, educating themselves about the risks, and learning how to work around or eliminate these risks, women will be able to clear those retirement hurdles with ease. Let’s take a look at five significant hurdles, highlighted by financial economist Dr. David Babbel that impact women’s retirements today.

“Five forces are converging upon Americans today in what some have called the Perfect Storm, and it is about to engulf us from all sides. The situation is particularly precarious for women (…) The best we can do is to organize our own finances in such a way that we can provide for ourselves and our families.”

  • “Decreasing rates of return on their Social Security contributions”
    • averaging 1.8 percent per year for single women
  • “The accelerating demise of defined benefit pensions”
    • 150,000 pension plans, which would have provided lifetime income security, have been discontinued since 1983, leaving less than 25,000 plans today, many of which plan to close within two years.
  • “The transition of the baby-boom generation into retirement”
    • the first boomers reached retirement eligibility in 2006 and will continue to enter the retirement ranks over the next 20 years, creating a huge cash drain on our Social Security system
  • “Longer expected lifetimes”
    • 65-year-old women have added another 4 years to their life expectancy since the 1960’s; over the past 160 years, women in the most developed countries have steadily added another year to their life expectancy for each four years that pass
  • “The much smaller post-baby boom generations who are being asked to support boomers’ unfunded benefits along with their own healthcare and retirement needs”
    • And owing to their greater life expectancy, women’s benefits will be much costlier to fund than men’s, all other things equal[2]

In addition to these points highlighted by Dr. Babbel, the U.S. Department of Labor has found that women are more likely to work in part-time jobs and therefore do not qualify for an employer-sponsored retirement plan. Their statistics show that, of the 62 million wage and salaried working women between the ages of 21 and 64 in the U.S. today, there are only about 45 percent who participate in a retirement plan—45 percent!

And even for those women who do actively participate in a retirement plan, they are more likely to contribute much less and, thus, have a lower amount of overall savings, due in large part to the fact that they are more likely than men to interrupt their working years to raise children and take care of aging parents.

Now that we have identified the hurdles and understand the different risks that are plaguing women today, what are the solutions? Stay tuned to next week as I will discuss how Fixed Indexed Annuities can offer some potential solutions for women in retirement.

[1] Nigel Barber PhD, “Why Women Live Longer Than Men: It’s All About Risk Management,” The Human Beast, August 10, 2010, https://www.psychologytoday.com/blog/the-human-beast/201008/why-women-live-longer-men

[2] David F. Babbel, “Lifetime Income for Women: A Financial Economist’s Perspective,” Wharton Financial Institutions Center Policy Brief: Personal Finance, July 31, 2008, http://fic.wharton.upenn.edu/fic/Policy%20page/RetirementIncome-Women.pdf

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