Ep. 3: Retirement planning challenges for women

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Hello, everyone. This is Lynn Toomey with the Her Retirement Walk the Talk podcast. I hope everyone’s having a fabulous day. I’m out walking, even though it’s cloudy and it’s been raining, it’s actually a really, really fabulous time to be outside. The birds are chirping, but it’s really still, and it’s just enough freshness in the air to fill your lungs and clear your head.

I was feeling a little stuck and isolated in the house and needed to get out and get a breath of fresh air. And I decided what the heck, why not get on a recording here and talk and walk and fill you guys in on some important concepts around planning for retirement. And specifically, when we are preparing for retirement, we as women have some extra challenges. Some people refer to them as retirement risks and others, I’ve heard the term, what if scenarios.

In either case you need to understand what these challenges are. You need to properly prepare for these challenges in your retirement plan. You need to really thoroughly understand how they may impact you so that you can mitigate them as best as possible. We’re not going to eliminate them, but we can prepare for them and try to mitigate their impact on our retirement outcome as much as possible.

So if nothing else, I want you to understand that there are some key risks. Now I once saw an article with hell, here’s your 127 risks in retirement. And literally, it was everything from stubbing your toe and not being able to go to your part-time job. I’m being a little facetious, but it literally listed 127 risks. And yeah, if you really want to get crazy and look at every possible scenario, they could probably quickly add up.

But for the purposes of what I talk about and coach and teach around is some of the maybe six to eight top risks that we really want you to focus on. And they are more likely to impact the average person’s retirement. So that’s why we like to focus on those. And also, you got to start somewhere and you can’t really try to plan around a 127 and feel confident, and that’s just way too overwhelming.

So we’re going to simplify it down to … What do I got here? Got about seven, I think, that I want to talk about. So let’s jump in and I hope that as you are listening to this, you’re going to get up and move. As I’ve said in my previous podcasts, this is my chance to get out and walk and talk and share with you all some thoughts and ideas.

And you’ll just have to put up with a little bit of background noise. The beautiful bird singing is actually a really nice background sound and then a little breathlessness for me as I walk and talk. So let’s jump into this. We’re going to talk about life expectancy, the earnings gap between men and women, career breaks, the retirement savings gap, the greater likelihood of women living alone, the tendency to invest too conservatively, and healthcare costs.

So let’s start by talking about life expectancy. And actually, while we’re talking about it, one of the ways that you can live longer is to get up and move, move your body, exercise. My father actually just came home from Florida and he’s a little down in the dumps because here in New England, late April, the weather’s not what it was in Florida. And he’s just been sitting in his chair for about a week.

And I keep saying to him, you got to get up and move. You got to keep … A body in motion tends to stay in motion. So just a side note on longevity, is get up and move. Don’t stop moving. But we women do tend to live longer than men, which creates more years in retirement in which there’s a pro and con to longevity, right? The pro is yes, if we’re healthy and wealthy, it’s a beautiful thing. But if we’re either not healthy or not wealthy or not happy, it’s not such a beautiful thing. So there’s that double-edged sword. But because we do live longer, we will need to generate more income for those years that we outlive men and have that longer life span.

70% of those ages 85 plus, according to the US Census Bureau, are women. And according to the Social Security Administration, the average man turning 65 today can expect to live to age 84.3. And the average woman turning 65 today can expect to live to age 86.6. So that’s an additional 27 months in retirement that a woman must plan for. And if you’re coupled up … Let’s say a couple, they’re both 65 years of age. There’s a 50% chance that one of those spouses will live to 92 in all likelihood it’s probably the woman. And 25% chance that one of those will live to age 97.

So when I am coaching people and teaching people, I say to them, when you work with that retirement planner or advisor or subject matter experts, make sure that you’re running your retirement income projections out to age 100, because there is a very strong likelihood that you could live to a ripe old age, and therefore you would need money to fund your life.

We do have access to a longevity calculator, which sounds kind of morbid, but it’s actually kind of interesting. It is science-based and you complete a questionnaire and then it gives you an assessment of your longevity. And I will be putting this podcast in a blog post, and I will share a link to that longevity calculator, if you’d like to give it a try and see where you come out on that longevity analysis.

But anyway, longevity is an important factor. One of the other things that you could consider, which I’ve heard a lot of people do, is they look at their parents. So my mom is 86, my father’s 84. They’ve got their health issues, but they’re both relatively good. They’re doing well. My significant other’s parents are 91 and 85. And again, they’re doing well.

So when we look at our longevity profile, we say okay, we tend to have some longevity. And my grandmother lived to a ripe old age. So we tend to look at that. Some people will say oh, both sides of my parents’ families. They they dropped dead at 75 years old. I’m not going to project out to age 100, but that’s a personal decision on doing that projection. But at Her Retirement, we err on the side of being more conservative and therefore we project out to age 100.

So next thing I want to talk about is one of the challenges women face is the earnings gap. So women who work full-time earn on average about 82% of what men earn. So this impacts savings, our Social Security retirement benefits and pensions for those who are lucky enough to have a pension. We have increased vulnerability to unexpected economic obstacles, such as job loss, divorce, single parenthood, illness, loss of a spouse, and that obviously impacts our income.

Next, women take more career breaks. I know I did. I actually retired from corporate America to raise my children. Conscious decision, but it impacted my retirement savings. And it was a trade-off, conscious decision that I made. But during that time I was raising twins. I wasn’t contributing to my retirement savings.

So now they’re 18, they’re going off to college and I’m catching up. Or as I say, I just flipped. I flipped my model. I took the time off when I was younger and now I’m going to work as I get older. But thankfully, knock on wood, I’m healthy, I’m energetic. And there’s no one right model. It’s just the flip of the normal model, I guess, is what I’ve embraced. But whatever you do, you do you.

But because of that, we do tend to take more career breaks. And when that happens, whether it’s for caring for your newborn or your parents, you have lost income, lost employer benefits, matching 401Ks, that kind of thing. You might potentially have lower Social Security retirement benefits. And then in the event of a divorce or spouse’s job loss, there’s going to be an impact. And then when you return to the workforce, you may have difficulty getting a comparable position.

So men, who typically don’t take those types of career breaks, they’re slow and steady wins the race, right? They’re just cranking along, they’re climbing that ladder, their income’s going up. Meanwhile, we may be in and out of the workforce and you don’t step back in typically where you left off. So reentering the workforce can be a challenge. And then a lot of us have flexible schedules, part-time schedules, and certainly compared to our male counterparts, that will impact our retirement savings.

So one of the interesting statistics is that according to a Vanguard study, men have 50% higher balances in their retirement plans than women, even though women are 11% more likely to participate in a retirement plan than men. So the message here is that women are more likely to save, we just don’t save as much. And I think women are more conservative, we’re more savers.

Whereas men probably think, Oh, I earn a good living. I’m going to be fine. We’re going to be fine. You know, we don’t have to save as often. They just are earning more consistently and therefore their balances tend to be higher. Next thing I want to talk about is the likelihood of women living alone. Women are more likely, for sure, than men to live alone. We see that for women age 75 plus, only 32% live with a spouse.

And now this could be by choice. This could be by widowhood. I don’t have, for the purposes of this podcast, the details behind that 32%, but I actually tend to call it, when I write about this kind of stuff or talk about it, is concept of suddenly single. And you can become suddenly single in a lot of different ways.

But clearly, women in retirement, a lot of them are living alone and trying to deal with all of those challenges on their own. So when you couple up, sometimes you can split the costs in half and when you’re single, you’re not sharing costs. And therefore, your costs can be higher. So that living alone concept and challenge is very real and very prominent in today’s America.

Next thing I want to talk about is heightened risk aversion. Women do tend to be more risk averse and more conservative. A BlackRock study of 4,000 investors found that women on average hold more conservative investments than male investors. A conservative approach can sometimes be a good thing, because as you approach retirement you certainly want to move your assets into lower risk portfolio.

You want to definitely be more conservative. You want to guard against a very real impact or risk, called volatility. And by being more conservative, you’re going to protect yourself from the risk of market volatility. So just from a basic perspective, volatility is just when the market moves up and down in, in wide swings sometimes, and that volatility can significantly impact your retirement savings.

Okay, so getting back on track here with the heightened risk aversion. I said that being conservative could be a good thing, but also being too conservative could prevent the type of growth that’s really needed for the amount of retirement income desired. So I always say that life is an interesting balance and an important balance.

So it’s very important to have that protection and that being conservative so that you’re not putting your portfolio at too much risk, but it’s also important to make sure that your portfolio has growth. You want to make sure that the growth component of your portfolio is still in place. Your portfolio is still growing because you want to address the impacts of inflation.

So inflation at 2 or 3%, really impacts your purchasing power and will impact the amount of money you have in retirement. So you need a growth component that has greater returns than 3% because otherwise you’re going to be losing money. So your stock part of your portfolio is really that growth part. So on the flip side of being conservative is making sure that you have that growth component and you don’t have too much risk aversion.

The next thing, and I think it’s the last thing I wanted to talk about. Something else might pop to mind, but the impact of healthcare costs in retirement. So I know that healthcare, Medicare long-term care, those types of things are a huge concern to women, because we know that potentially we are going to be alone, without a spouse or a partner. In some cases, people that don’t have children, they are very concerned because they will truly feel alone when it comes time for needing that care and that care costs money.

So making sure that you account and plan and prepare for healthcare costs is … I can’t even understate it enough. And most people underestimate the amount of healthcare and the amount of costs that they’re going to need to cover in retirement. So for example, the average couple will need about $250,000 in out of pocket, will need that amount of money for out of pocket healthcare costs in retirement.

So it’s really important to try to put that money aside or at least plan for it in your expense projections. One of the ways a lot of people aren’t aware of for saving for this is through a health savings account or an HSA. If you have one available through work, it is a tremendous vehicle. I just did a blog post on this that you can go check out on the Her Retirement website, but you can save your money.

It’s triple tax advantaged, so it’s tax-free. You put in money, pre-tax into it, you can withdraw the money tax-free it does not affect your RMDs, it does not affect provisional income for the purposes of Social Security. It’s probably one of the best investments out there for saving for healthcare expenses, so definitely check that out. Because you are going to have healthcare expenses in retirement and potentially those costs could decimate your portfolio if you’re not prepared.

As far as long-term care, 57% of women over the age of 65 will need long-term care. And the average monthly cost across the United States … This car go by, here we go. The average cost of nursing home across the United States is almost $7,000. And that’s monthly. So again, making sure that you understand your options, making sure you understand Medicare, making sure you have a plan for long-term care.

There’s ways to fund long-term care. You can do that through an insurance policy. You can do that through a reverse mortgage on your home, since your home is a dead asset. There’s some fabulous ways to fund a long-term care incident if you happen to be one of those people that need long-term care. So I want to wrap up this podcast to say in summary, unlike our male counterparts, we women do face some formidable challenges when it comes to our financial lives and planning for retirement.

We live longer, we make less, we invest less, we take career breaks. We’re primary decision makers for purchases, but less confident in our financial decisions. Also, over the next 10 years, women … This is going to be a huge wealth transfer and a great many women who are my age or older are going to be inheriting money and knowing what to do with that money and how to protect it, preserve it and grow it is going to be critical.

And that’s actually one of the main reasons I’ve put together my company and this podcast, Her Retirement, and Walk the Talk, so that I can help as many women protect, preserve, and grow their money. As my mother used to say, you don’t want to be a bag lady in retirement. And I want to prevent people from being bag ladies.

I want you to get educated and knowledgeable, and I hope that you really dig into these risks and challenges and talk to your advisor, talk to your subject matter experts. Whoever it is that’s giving you that financial advice, make sure they’re addressing these risks for you. Ask them the tough questions, and then make sure you understand them yourselves.

The good news. The good news with all of this is, we are planners and we’re doers. We research and we seek knowledge. We’re intuitive and determined. And guess what, ladies, we’re not afraid to ask for directions. So get out there, ask for directions, ask for help, ask for clarification, demand the answers that you are looking for. Don’t accept any advice without clear answers without 100% understanding.

Whoever you work with should take the time to explain any idea, topic, advice to your satisfaction, so that you walk away and you don’t have any questions. You’re confident you understand the data, you understand the research, you understand the expectations and you basically can have that peace of mind. You know more, you have more and you’re ready to rock your retirement.

So thank you for listening to this version of the Walk the Talk podcast. I appreciate you walking along with me today. And as you can tell, I entered some flats. So I was less out of breath. Those Hills can be challenging to walk and talk, but again, thanks for tuning in and till next time, let’s go get her done. Have a great day.

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