A young woman executive in a financial meeting

Women, Don’t Retire Without…

A practical financial checklist for the future.

 

When our parents retired, living to 75 amounted to a nice long life and Social Security was often supplemented by a pension. How different things are today!

 

The good news is that life expectancy for women – as measured by the Centers for Disease Control – is now 81.1 years. The Social Security Administration estimates that the average 65- year-old woman today will live to age 86. 1,2

 

Given these projections, it appears that a retirement of 20 years or longer might be in your future.

 

Are you prepared for a 20-year retirement? How about a 30- or 40-year retirement? Don’t laugh, it could happen: the SSA projects that about 25% of today’s 65-year- olds will live past 90, with approximately 10% living to be older than 95. 2

 

How do you begin? How do you draw retirement income off of what you’ve saved, and how could you create other possible income streams? How do you try and protect your retirement savings and other financial assets?

 

Talking with a financial professional – a female financial professional – may give you some good ideas. You want an advisor who walks your walk, who understands the particular challenges that many women face in saving for retirement (time out of the workforce due to childcare or eldercare, maintaining financial equilibrium in the wake of divorce or death of a spouse).

 

As you have that conversation, you can focus on some of the must-haves.

 

You should plan your investing. Many women (and men) retire with a random collection of investments, and no real strategy. Some are big on “chasing the return” – assuming risk they really shouldn’t in pursuit of a double-digit yield. Others are very risk-averse, so fearful of what stocks might do that they stay out of the market entirely – and in the current low interest rate environment, that represents an easy way to fall behind and lose purchasing power to inflation.

 

You need a middle ground. When you are in your fifties, for example, you have less time to make back any big investment losses than you once did. So protecting what you have is a priority. At the same time, the possibility of a 15-, 20-, or even 30- or 40-year retirement means you have to keep a foot, if not both feet, in some kind of growth investing. Your initial retirement nest egg has to keep growing.

 

You should look at long term care coverage. It is an extreme generalization to say that men die sudden deaths and women die lingering ones; however, women often have longer average life expectancies than men and can require weeks, months or years of eldercare. Medicare is no substitute for LTC insurance; it only pays for 100 days of nursing home care, and only if you get skilled care and enter a nursing home right after a hospital stay of 3 or more days. Long term care coverage can provide a huge financial relief if and when the need for LTC arises. 3

 

Claim those Social Security benefits carefully. If your career and health permit, delaying Social Security  is a wise move for single women. If you wait until full retirement age to claim your benefits, you could receive 30-40% larger Social Security payments as a result. For every year you wait to claim Social Security, your monthly payments get about 8% larger. 4

 

Married women can look at spousal claiming strategies such as the “file and suspend” approach and claiming spousal benefits first. This may help to maximize the Social Security benefits you and your spouse receive.

 

Above all, retire with a plan. Have a financial professional who sees retirement through your eyes help you define it on your terms, with a wealth management approach designed for the long term.

 

1 – http://cdc.gov/nchs/data/nvsr/nvsr61/nvsr61_06.pdf

2 – http://ssa.gov/planners/lifeexpectancy.htm

3 – http://medicare.gov/coverage/skilled-nursing-facility-care.html

4 – http://money.usnews.com/money/retirement/articles/2012/04/02/what-older-workers-dont-know-about-social-security

THE RETIREMENT REALITY CHECK

Little things to keep in mind for life after work.

Decades ago, there was a popular book entitled What They Don’t Teach You at Harvard Business School. Perhaps someday, another book will appear to discuss certain aspects of the retirement experience that go unrecognized – the “fine print”, if you will. Here are some little things that can be frequently overlooked.

How will you save in retirement? More and more baby boomers are retiring with the hope that they can become centenarians. That may prove true thanks to healthcare advances and generally healthier lifestyles.

We all save for retirement; with our increasing longevity, we will also need to save in retirement for the (presumed) decades ahead. That means more than budgeting; it means investing with growth and tax efficiency in mind year after year.

Could your cash flow be more important than your savings? While the #1 retirement fear is someday running out of money, your income stream may actually prove more important than your retirement nest egg. How great will the income stream be from your accumulated wealth?

There’s a longstanding belief that retirees should withdraw about 4% of their savings annually. This “4% rule” became popular back in the 1990s, thanks to an influential article written by a financial advisor named Bill Bengen in the Journal of Financial Planning. While the “4% rule” has its followers, the respected economist William Sharpe (one of the minds behind Modern Portfolio Theory) dismissed it as simplistic and an open door to retirement income shortfalls in a widely cited 2009 essay in the Journal of Investment Management. 1

Volatility is pronounced in today’s financial markets, and the relative calm we knew prior to the last recession may take years to return. Because of this volatility, it is hard to imagine sticking to a hard-and- fast withdrawal rate in retirement – your annual withdrawal percentage may need to vary due to life and market factors.

What will you begin doing in retirement? In the classic retirement dream, every day feels like a Saturday. Your reward for decades of work is 24/7 freedom. But might all that freedom leave you bored?

Impossible, you say? It happens. Some people retire with only a vague idea of “what’s next”. After a few months or years, they find themselves in the doldrums. Shouldn’t they be doing something with all that time on their hands?

A goal-oriented retirement has its virtues. Purpose leads to objectives, objectives lead to plans, and plans can impart some structure and order to your days and weeks – and that can help cure retirement listlessness.

Will your spouse want to live the way that you live? Many couples retire with shared goals, but they find that their ambitions and day-to-day routines differ. Over time, this dissonance can be aggravating. A conversation or two may help you iron out potential conflicts. While your spouse’s “picture” of retirement will not simply be a mental photocopy of your own, the variance in retirement visions may surprise you.

When should you (and your spouse) claim Social Security benefits? “As soon as possible” may not be the wisest answer. An analysis is needed. Talk with the financial professional you trust and run the numbers. If you can wait and apply for Social Security strategically, you might realize as much as hundreds of thousands of dollars more in benefits over your lifetimes.

1 – http://www.forbes.com/forbes/2011/0523/investing-retirement-bill-bengen-savings-spending-solution.html

financially independent woman

It’s All in Your Hands

A Post-Divorce Action Plan

You have just gone through one of the most challenging and difficult periods that a woman can experience in her life – a divorce. While many things may still be in up in the air, one aspect of your life that you should make sure you’re in control is your finances.

Financial planning for divorced women is not that much different than financial planning for married couples. Several basic elements are the same. However, the differences offer both good news and bad news. The good news: you can make plans and decisions based solely on your needs and goals. There won’t be miscommunication or conflicting ideas. The bad news: it’s all in your hands. Any mistakes will be your own and a poor decision can’t be salvaged by the income or assets of a partner.

The following post-divorce action plan offers a few things worth considering:

One way to counter the bad news is to find a trusted professional to seek advice from.

After a divorce, friends are often split between spouses. Financial representatives can be the same way. If you lost yours in the divorce or never had one to begin with, it’s a good time to consider finding a professional who can help you make sound financial decisions for your new life.

To find one, start simply. Ask friends or acquaintances who it was that helped them when they went through a divorce. The attorney who handled your divorce may also be a good source for a referral. It’s important to have someone help you who has previously assisted or – best of all – who specializes in helping divorced women.

Selecting the right financial professional for you is a critical step. After all, this person will be helping you with the important financial decisions you now have to face.

Long-term care insurance may become even more important post-divorce.

Long-term care policies are designed to cover the costs of care if you are unable to care for yourself because of age or if you become ill or disabled. Long-term care is especially important for women because they typically pay more for it than men do. The reason is simple: women typically live longer than men and usually require longer care during those additional years.1

A woman’s retirement is usually more expensive than a man’s.

The reason that women usually need long-term care insurance more than men is the same reason that retirement income planning for women may be more important. Women live – on average – 5 to 10 years longer than men. Eighty-five percent of people over 100 are women.2 This means a woman’s retirement savings must, on average, be stretched out over a larger number of years.

While, in general, retirement planning for a single person is easier in many ways than for a couple, remember … you can no longer rely on a spouse’s financial resources if a mistake is made. It’s important to review your social security estimates, any pensions you have and your retirement assets. You can then compare that to the kind of lifestyle you would like to have during retirement.

Because retirement may be more expensive, you may want to make an employer-sponsored retirement plan a larger deciding factor in any job search. Also, you may decide that you must retire at a later date than you had originally planned.

Update your beneficiaries and consider using a trust to help manage your assets. People often forget to update the beneficiaries of their life insurance and retirement accounts after a divorce. If not changed, your ex-husband may stand to inherit a large portion of your assets. Also, the estate laws give certain breaks to married couples that are not available to a single person. Establishing the proper type of legal trust may be a way to pass along more of your assets to your heirs, rather than to the IRS.

Finally, after you have moved on from your divorce there may come a time when you consider remarriage. It’s important that you understand the financial effects this may have. If you were married longer than 10 years you may be collecting or entitled to 50% of your ex-husband’s social security benefit. If you remarry you will no longer have that right. While you will become entitled to your new husband’s benefit, you must know if your new husband’s benefit will be lower or higher, and how that will affect your retirement.

Remarriage can also lead to blended families, blended assets and blended income. Your new husband may have his own family from a previous relationship. A financial professional can help the two of you prepare for this blending that satisfies the financial needs of each of you, as well as your new family.

While it’s all in your hands, partnering with a financial professional can help you move on to the next phase of your life with a more solid plan for your financial future.

1. http://www.wife.org/long-term-health-care.htm
2. http://www.time.com/time/health/article/0,8599,1827162,00.html