Highlights From a Women’s Retirement Class

I recently attended a seminar about financial concerns facing women in retirement. Below are seven key take-aways that I gleaned from the presentation and accompanying materials:

 

Income Gap- This is the difference between an individual’s (or couple’s) total retirement income from various sources (e.g., pension, Social Security, annuities, dividends/capital gains, full- or part -time employment, self-employment) minus fixed (e.g., rent and car payments), variable (e.g., gas, food, and gifts), and occasional (e.g., insurance premium) expenses.

 

Social Security Stats- About half of single women age 65+ rely on Social Security for 90% of their income, despite the fact that it was always meant to be “a base to build on.” The break-even age, when people get more in benefits by claiming at full retirement age (FRA) than by taking early benefits at age 62, is about 12 years (i.e., at around age 78 with an age 66 FRA).

 

Longevity Stats- Women typically live longer than men, with one in three living to age 95. After age 80, the ratio of widows to widowers is 5 to 1. Some women could be retired for more years than they worked (e.g., work from age 20 to 55 and retirement from age 56 to 95 or even 100). This speaks to the need to save throughout one’s career to create an adequate nest egg.

 

America’s 401(k) Experiment- 2023 is the 45^th anniversary of tax-deferred 401(k) retirement savings plans that workers fund with voluntary contributions from their pay. Baby Boomers were “guinea pigs” for the use of 401(k)s, often as a substitute for defined benefit pensions. We are just starting to see results from the first generation relying primarily on 401(k)s to retire.

 

Withdrawal Guidance- The widely touted “4% Rule” cannot be applied blindly to everyone. Withdrawals from invested assets to pay living expenses must consider a person’s risk tolerance level and age in retirement. Older women who retire in their 70s and 80s+ can withdraw more than 4% of invested assets while more conservative women in their 60s should withdraw less.

 

Portfolio Reliance Rate- This is the percentage of retirees’ spending that comes from invested assets. In other words, how much they rely on investments for living expenses after accounting for other income sources such as Social Security, annuities, and a pension. A simple formula to calculate Portfolio Reliance Rate is PRR= Expected Spending ÷ Income Gap. For example, with $60,000 of expected expenses and a $30,000 income gap between expenses and guaranteed income sources, the reliance rate is 50% (i.e., half of the money for expenses from investments).

 

Window of Opportunity- While women live longer than men, on average, and should plan on living longer than they think, as well as building inflation price adjustments into future plans, nobody has a crystal ball for how much time they actually have. Another reality is that not all of a woman’s retirement years may include good health and mobility. It is generally not wise to postpone important “bucket list” goals but, rather, to front-load them to do early in retirement.

 

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.