The Calamity of So Long Life: How Not to Outlive Your Assets
Facebook Chief Operating Officer Sheryl Sandberg’s exhortation for women to "lean in" to their careers has encountered more than a bit of pushback. But if there is one thing women need to seriously lean into, it is planning for what comes after the career: a long post-work life.
Granted, retirement planning is challenging for both genders. In a survey conducted by the Society of Actuaries, less than 20 percent of men and women say their planning horizon is at least 20 years. Thing is, the repercussions of not properly planning for a long retirement are higher for women, who face strong odds their retirement will be far longer than that.
Average life expectancy at age 65 is 20 years for women, compared with 17 for men. That means there is a 50 percent chance a woman age 65 today will still be alive at age 85. And that's just if you're average. Nearly one-third of women age 65 today will celebrate their 90th birthdays.
“What often isn’t understood is the variability,” says Cynthia Levering, a retired pension actuary who continues to work with the Society of Actuaries. “You really need to plan around what happens if you are healthier and fall into above average.” To wit, a 65-year-old woman who lands in the top quartile in terms of longevity has a 62 percent chance of making it to (at least) 85 and a 42 percent chance of getting to 90. (For men in good health, the odds shift to 50-50 of being alive at 85 and 30 percent for age 90.)
Joe Tomlinson, an actuary and financial planner in Greenville, Maine, says those not-so-long odds of a long life is why he typically builds retirement plans around a 95-year life span. “This is one assumption you don’t want to underestimate,” he says.
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Compounding the longevity challenge in retirement planning is that women typically have more conservative investment portfolios than men. While that means they may not suffer as much as men from a stock market drop, it also means that in the very long run they are more likely to run out of money. Fewer than half of women surveyed by Prudential said they were willing to take risk for the opportunity of reward, compared with 70 percent of men.
Advisers say once they demonstrate the perils of an overly conservative portfolio with just a few powerful spreadsheets and graphics, women start to see the light. “It’s not such a hard sell,” says Pamela Sams, a Herndon, Virginia, adviser who specializes in retirement planning for women.
Katherine Roy, chief retirement strategist at JPMorgan Asset Management, says advisers have also found dividing a portfolio into buckets devoted to certain types of spending or earmarked for specific periods of time can help risk-averse women get more comfortable with a diversified portfolio. “Once they see they have two to three years’ living expenses set aside for spending, they aren’t as concerned about the volatility in the rest of the portfolio," says Roy. "They understand they won’t be drawing down from that piece of the pie chart.”
Education is also clearly lacking for both genders when it comes to taking Social Security benefits. For individuals or couples stressed about later-life income, financial planners recommend delaying retirement payouts.
For every year after you reach full retirement age (between 66 and 67), your benefit is increased by 8 percent until age 70. “That’s a guaranteed 8 percent a year,” says Jane Nowak, an Atlanta financial adviser. “There’s no other risk-free investment that offers that return.” Social Security reported that in 2011 just 2 percent of women and 1.1 percent of men waited until at least age 70 to begin their retirement payouts.
Another financial mistake is to be scared off by the complexity of choosing a long-term-care insurance policy. There’s no getting around the fact that such coverage is expensive, and the industry is in a serious state of flux. Many insurers, facing low returns on invested premiums and higher claims than anticipated, have either stopped writing new policies or are charging a lot more.
Rather than give up on LTC insurance, Jesse Slome, executive director of the American Association for Long-Term Care Insurance, suggests a strategy for getting a more affordable policy. While standard advice has been to buy an inflation rider on a policy, Slome says forgoing it can cut premium costs in half. “That [policy is] still going to be a big help if you end up needing care,” Slome says. “Something is a lot more help than nothing.” Even without the rider, the benefit will be a multiple of the total premiums paid.
A 60-year-old couple buying a policy without an inflation rider that gives each more than $160,000 in lifetime benefits would have an annual premium of about $1,800. Slome also recommends pre-retirees look at plans that have a Future Purchase Option. The initial premium will be 5 percent or so higher, but it enables you to periodically increase coverage regardless of changes in your health. (The website of Slome’s organization, aaltci.org, connects consumers to agents in their state that work with insurers selling policies with that option.)
JPMorgan’s Roy says single-premium deferred annuities (also called longevity annuities) can also be useful. These annuities, typically purchased at age 65 or so, start paying out around age 80 or 85. Because there's a lower probability you’ll still be alive at 85, the premium is much less than for an immediate annuity bought at age 65.
“It creates a backstop from age 85 and beyond for covering your basic needs, and that can also give you more confidence spending down your assets,” says Roy. That can be valuable peace of mind for women with the good -- though costly -- fortune of having a long life.
(Carla Fried is a freelance writer based in California.)
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