Retirement and Social Security challenges for womenArticle added by Mary Quist-Newins on January 20, 2009
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Mary Quist-Newins

NEWMANSTOWN, PA

Joined: June 03, 2008

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Even before our country's current economic woes, one could reasonably argue that the vast majority of both American women and men needed trustworthy, competent and financial professionals to guide them. As markets have continued to unravel in recent months, that need has grown. Moreover, navigating the complexities of Social Security benefits and integrating them into a well-thought-out plan of action require significant expertise.

Here are just a few unsettling statistics for perspective:
  • Thirty-one percent of the U.S. workforce had no savings set aside.1

  • Forty percent of all Americans end up retiring earlier than planned.2

  • The U.S. savings rate experienced a steady decline from 1970 when Americans saved roughly 9 percent of their after-tax income to 2005, when the savings rate actually drifted into the negative.3
Since women, on average, have less savings than men, we can only imagine a more ominous picture. The sad fact is that many women face a nightmare of poverty in retirement. The data that illustrate this phenomenon are as tragic as they are startling:
  • Almost three-in-four Americans older than the age of 65 living in poverty are women.4

  • The median income for women over age 65 is more than one-third lower than men in the same age group.5

  • A full 80 percent of widows living in poverty were not poor when their husbands were alive.6

  • By some estimates, without Social Security, the poverty rate for elderly females would increase from about 12 percent to more than 50 percent.7
Factors that increase a woman's retirement risks and potentially compromise her Social Security benefits include:
  • Family matters: On average, women take 12 years out of their working lives to care for children and/or parents. 7 Fewer years in the workforce results in fewer dollars set aside for the future and lower Social Security benefits.

  • Lower earnings: The wage gap of about 20 cents on the dollar to the average earned by men translates to an even larger proportion of income that should be saved and smaller Social Security payments.8

  • Greater longevity: This means that a woman's retirement savings and her benefits need to stretch much further. To compensate for both higher life expectancy and a greater need for self sufficiency, some have calculated that women need to save as much as 2 percent more than men every year for 30 years.9

  • Singlehood: Women are more than twice as likely to be alone in their later years as men10. In 2004, according to the Social Security Administration, 61 percent of women older than age 65 living alone had an annual income under $15,000. Even adjusted for inflation, that income still falls below $20,000 per year.5

  • Sources of income: For 25 percent of unmarried women, Social Security is their only source of income.11
As financial professionals, it is essential for us to take note of these issues when helping our female clients with their retirement plans. It is all the more important when we consider how vital Social Security is for most Americans. Almost two-thirds of all beneficiaries older than age 70 are female and for three-in-four women, benefits represent at least half of their retirement income.12

Beyond the current state of affairs for women, it is likely we will see an increasing, not declining, dependency on Social Security in light of the current economic climate, persistently low personal savings and other risk factors. As such, it falls to us to not only become experts on the intricacies of Social Security benefits, but also when it might be best for a woman and her spouse, if applicable, to claim them.

In a 2007 article from the Journal of Financial Planning, Alicia H. Munnell, director of the Center for Retirement Research at Boston College, suggested that it is generally advisable for single women to delay claiming as long as possible. For married couples, wives (who are most likely younger) should claim early and the husband should delay.13 However, with these, as with any "rules of thumb," making sweeping generalizations can be dangerous unless our clients are (pardon the pun) "all thumbs."

Since Social Security is the mainstay for many women, it's important for financial professionals to carefully analyze a range of benefits and alternative income (e.g., working and asset-based) options. And, it's not just her benefits that matter. Analyzing various scenarios on both spouses determines the impact of taking benefits earlier or later. As many women outlive their husbands, projections also must take into account what she might be entitled to as a surviving spouse with her potentially higher life expectancy. The health history and longevity patterns of both the husband and wife are also essential to take into consideration.

Simply put: Relying solely on basic assumptions, rules of thumb, or even the annual statement of estimated Social Security benefits will fall far short of what most women will need in a well-developed retirement plan.

An excellent resource for both financial professionals and the public is the Social Security Web site at www.ssa.gov. The site is rich in information, including frequently asked questions and the most comprehensive resource of all -- the Social Security handbook. The handbook provides exhaustive detail on all aspects of the program and will help you build the expertise that will aid many of your clients.

In addition, the Web site provides four calculators to estimate the impact of claiming benefits earlier or later. You can then plug those benefit amounts into planning software, along with assumptions on other income sources (e.g., pensions, asset yield and liquidation, employment, etc.), estimated expenses, longevity and inflation.

Becoming an expert in Social Security and how to optimize benefits in a woman's retirement might literally save her from a life of poverty. Most of us came into this business to help others. Here is a real opportunity for us to do just that.

The benefit of your hard work in putting together a well-thought-out plan? Industry studies show that planning not only increases a woman's confidence, but also increases the rates of implementation and cross-selling. This means not only greater retirement security for your female clients, but also more referrals, higher income and maybe even the satisfaction of knowing you made a real difference.

1 Helman, R., Greenwald, Mo, VanDerhei, J. Copeland, C (2008). Retirement Confidence Survey: Americans Much More Worried About Retirement, Health Costs a Big Concern. Employee Benefit Research Institute.
2 McDonnell, E.C. & Dulisse,R.A.,(2007) Retirement Planning for Women (7.1). In Hayes, L., Marketing Financial Services to Women. Bryn Mawr: The American College
3 U.S. Bureau of Economic Analysis
4 U.S. Census Bureau, Current Population Survey, Annual Social And Economic Supplement, 2006 (Washington, 2007)
5 Society of Actuaries, Key Findings and Issues, The Impact of Retirement Risk on Women, 2005 Risks and Process of Retirement Survey
6 U.S. Census Bureau, Marital Status of the Population 15 Years and Older (Washington, DC 2003)
7 Hounsell, C. Women Face Unique Challenges When Planning for Retirement. WISER. March 2006.
8 Bureau of Labor Statistics, 2007.
9 Longer lives, less pay -- women not saving enough. Washingtonpost.com. July 8, 2008.
10 Women and Life Insurance, LIMRA Int'l, 2005
11 Women and Retirement Security. National Economic Council Interagency Working Group on Social Security. www.ssa.gov. October, 1998.
12 How does Social Security help women today? Wachovia. August 2004.
13 Married and Single Women Face Different Choices When Claiming Social Security Benefits. Journal of Financial Planning. June 2007.
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