Women and Longevity Risk

3 MIN READ | #blog

The likelihood that you will outlive your money is known as “longevity risk.”  While everyone needs to be diligent in making sure their financial resources last as long as they do, women face a higher longevity risk for several reasons.

  • More candles on the birthday cake – putting increased strain on their financial resources for retirement.
  • Fewer dollars in the paycheck – Despite efforts to create pay equity in the workplace, women still earn just 80 cents for every dollar that men earn, according to the Highlights of Women’s Earnings in 2017, U.S. Bureau of Labor statistics, 2018. Because they earn less, their ability to save is compromised.
  • The caregiver penalty – Many women take some time off from their careers to raise a family and/or care for elderly parents. This reduces the time they contribute to a retirement plan or receive an employer’s contribution. It also affects the size of their Social Security benefits.
  • Lack of pension – Women are more likely to work in part-time jobs that don’t qualify for pension coverage.

For all of these reasons, women need to make an extra effort to save and accumulate more money so that their retirement funds last longer. Financial habits that can help women reduce their “longevity risk” include:

Think about your short-term and long-term goals and create a financial strategy to reach each one. You don’t need a long or formal statement, just a written plan of action.

Maintain a healthy balance sheet and if you accumulate debt, especially high-interest rate credit card debt, pay it off as soon as you can.

Buy only what you can afford now. One effective approach is to track all your spending for a month, evaluate which expenses are truly necessary, and then cut out what isn’t needed.

Build long-term financial resources for retirement through regular savings. Start today and you can begin to put the power of compounding on your side.

Grow your net worth by making it your top priority to pay off debt and save for your retirement throughout your working years. Over time, your net worth—your assets minus your liabilities—will grow.

Keep your will up-to-date and consider life, health and disability income insurance to protect your loved ones should something happen to you.* Also, investigate long-term care insurance to protect your assets and spare your loved ones from having to be your full-time caregivers.

Limit annual withdrawals to 4% of your initial retirement account balance when you retire. Then adjust for the rate of inflation. This will give your nest egg a better chance of lasting 30 years or longer.

Consider purchasing a fixed annuity to create a lifetime stream of income. Calculate your fixed monthly costs. Subtract your Social Security benefits. Then, consider whether an annuity can help cover the difference.

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SOURCES:

1 World Health Organization, World Health Statistics, 2016

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