Women’s contributions to society are boundless. But even as they continue to trailblaze the labor market and find greater financial power, one critical wildcard remains—longevity.
Women earn less than men—about 82 cents to the dollar, according to NBC News.
They are more likely to take breaks from their career for child support and/or caregiving, resulting in an over 1 million dollar gap in lifetime earnings, according to Merrill Women and Money report.
Women are also expected to live longer than men, according to the CDC.
Looking at these facts, something doesn’t add up.
The impacts of COVID-19 on schools, childcare, and work, have caused even further setbacks for women in the workplace. Overall, women have lost a record 5.4 million jobs throughout the pandemic—1 million more than men.
It’s essential that women find long-term financial stability and wellness. But how can you plan for longevity when it seems like the odds are stacked against you?
Our TFS team would love to walk with you on this journey and help you build a plan completely tailored to your unique situation. Today, we’re going to explore avenues for women to consider longevity in their long-term financial plan.
How Does A Longer Life Expectancy Impact A Woman’s Financial Plan?
According to the CDC, the average life expectancy for women is 80.5—about 5.5 years longer than men! This data suggests that it’s rather likely that a woman will outlive her spouse. It’s also likely that women will be the primary caregivers for their spouses.
That’s roughly five extra years of living expenses, healthcare, lifestyle needs, taxes, and more, all of which could be supported by one income instead of two. Social Security benefits alone will be reduced by at least ⅓ and possibly up to ½. This presents several important considerations and potential lifestyle changes.
The impact on your lifestyle rests on several moving pieces:
- Your investments (401k, IRA, brokerage, any inherited accounts, etc.
- Insurance policies
- Healthcare needs
- Social Security
- Pension income
- Retirement goals
- Spending habits
- Estate plan
Longevity predictions should be baked into your and your spouse’s retirement plan from the start. Doing so will help each of you prepare to take care of the surviving spouse. Planning early can help mitigate financial stress and uncertainty in the future. Let’s dive into the top ways that women can prioritize their financial health throughout retirement.
1. Consider Your Health—Physical and Fiscal
Physical health is an essential component of longevity planning. Everyone’s health situation is different and should be accounted for on a case-by-case basis. Some elements that could impact your health long-term are:
- Current health and underlying conditions
- Family health history
- Lifestyle habits
Staying active in retirement is an excellent way to promote your health long-term. Even so, it’s expected that 70% of people 65 or older will require long-term care at some point, and in Washington, such care doesn’t come cheap.
Most recent data revealed that the average cost of nursing homes in WA runs at $266 per day—a solid $38 higher than the national average. With the average stay in a nursing home running 28 months, you’re looking at over $210,000 in nursing home expenses alone. That’s almost $30,000 more than the average 401(k) balance at 70—$182,100.
All that, and an AARP study also found women comprised over 70% of residents in nursing homes, making long-term care a critical consideration for women.
Those numbers aren’t counting any other long-term care requirements like home caregivers before or after the nursing home stay and other medical expenses like surgery, ongoing treatments, or regular Medicare payments.
Healthcare costs and funding can easily absorb a significant amount of your nest egg, making it necessary to properly plan for. All of these numbers lead to one question:
How can you pay for it?
Tips To Prepare for Long-term Care Costs
Long-term care can be funded from multiple sources.
- Long-term care insurance
- Personal investments
There is another option for Washington residents. The state recently passed an initiative to create a publicly operated long-term care insurance program. How will the state pay for it? They’ll issue a new tax. Starting January 1, 2022, W-2 employees will be subject to a 0.58% payroll tax on all earned income. The tricky part about this tax is that there is no income cap, so all earnings for W-2 employees will be subject to this new tax.
Is there a silver lining? If you have your own long-term care insurance policy, you can opt-out of the tax and the program.
Keep in mind that everyone’s situation will be different and that these are simply general ideas to consider as you look at how long-term care could fit into your longevity plan.
Long-term care insurance can be a good way to bring flexibility and options to your care plan. We like to view it as a supplemental tool to your other retirement resources. It may not cover the full cost of your care, but it could go a long way to preserving your nest egg, future inheritances, and other retirement assets to support your desired lifestyle.
But long-term care insurance can be costly and isn’t right for everyone. Generally, our rule of thumb is that if the premiums consume more than 7% of your income, it’s too expensive.
For those with robust retirement resources, they may be able to divert some funds from their nest egg to pay for the cost of care.
While Medicare doesn’t cover the costs of long-term care, Medicaid can kick in should you qualify. In many cases, qualifying for Medicaid means dipping into nearly all remaining assets and as such might not be an option you want to rely on.
Keep in mind that states have “spousal protection” provisions that allow for a healthy spouse to retain more assets. It’s designed to help people keep enough for living expenses while also allowing their spouse to receive long-term care via Medicaid.
2. Create a Social Security Plan
Building a strategic Social Security plan with your spouse is vital for longevity planning. Social Security benefits are based on lifetime earnings and indexed for your highest 35 working years.
What if you don’t have 35 years in the workforce? The Social Security Administration inputs a “0” in your formula, which can have drastic impacts on your full benefit amount. This can affect women who may have taken time away from work to raise their children or care for a parent or relative.
For married couples, Social Security planning is critical. Our team can help you build a plan that maximizes the surviving spouse’s benefits. Survivor benefits are among the more complex elements of Social Security. Let’s take a look at the basics.
A widow or widower qualifies for survivor benefits if,
- They are at least 60 years old
- Have been married for more than 9 months before the time of death
There are several exceptions including if you have a disability or if you’re caring for a minor child—which allows you to apply earlier.
Survivors are eligible for 100% of their late spouse’s benefit should they claim at full retirement age. Claiming before full retirement age results in a reduced benefit. If you were receiving spousal benefits, the SSA will likely automatically switch to the survivor benefit once the death was reported.
It’s important to note that you won’t receive benefits both off of your work record and survivor benefits—the SSA will pay the higher of the two amounts.
While implications are complex and vary greatly from couple to couple, below are some general guidelines to consider.
- Maximize the higher earner’s benefit.
- Consider a restricted application—file for the lower benefit first, then switch to the higher at 70. While this type of application was removed from spousal benefits, it’s still a viable option for survivor benefits.
We know how critical Social Security planning is for longevity. Moving from two benefit checks to one can cause a dramatic drop in benefits—likely more than many people anticipate. It will reduce your benefit anywhere from 35-50%, and the discrepancy is worse for couples with similar earnings. Our team would like to help you make a plan for Social Security benefits throughout retirement.
3. Prioritize Your Investments
Women are strong investors. They tend to be more values and goals-based, save more, maintain realistic expectations, seek counsel when needed, and take a long-term view of their portfolio’s performance, according to a Fidelity study.
While women are steady investors, they tend to face several financial obstacles when it comes to retirement planning. A Merrill Lynch benefits report found that women enter retirement with an average of $70,000 less than men. This could present a significant challenge as they are also positioned to outlive men by about five years.
Women need to prioritize their investments to and through retirement. A strong investment plan tailored to your goals, values, risk tolerance, and more can put you in a better position to support your lifestyle longer.
Women also tend to be more risk-averse than their male counterparts. While risk is inherently personal, a certain amount of risk is necessary to sustain a 30+ year nest egg.
We’d be remiss to talk about longevity and not bring up inflation. Your portfolio needs to consider the impacts of inflation on your total nest egg. $1 today certainly won’t equal $1 10 years from now, making it critical that your portfolio is positioned to withstand the effects of inflation.
It’s all about building intentional portfolios and creating a withdrawal strategy meant to stand the test of time.
4. Account for Changes In Spending and Goals
According to Fidelity, 60% of women are concerned about outliving their retirement savings. This is a common fear among many pre-retirees. How can women prepare their finances to last well into the future?
Let’s take a look at a few ideas.
- Avoid spontaneous overspending early in retirement
- Know spending goals and habits
- Create a strong cash flow plan
- Consider lifestyle changes should you outlive a spouse—downsizing, moving to a retirement home or closer to family, etc.
Preserving your nest egg is all about maximizing the resources available to you. We’d love to help you build a plan that works for you.
5. Work With A Team You Trust
Planning for a long life is a beautiful, exciting, and sometimes challenging experience. It’s critical to know that you don’t have to undergo these life transitions alone. Our team at TFS is positioned to guide you through life changes and help bring confidence and clarity to your money.
Is your retirement plan built to support your life? Let’s talk about it together.