The Retirement Challenge. Dilemmas and Decisions Through Every Decade

Transcription

1 The Retirement Challenge Dilemmas and Decisions Through Every Decade

2 Contents How Women in All of Life s Stages Can Prepare for a Secure Retirement 3 In Her Twenties 4 In Her Thirties 5 In Her Forties 6 In Her Fifties 7 In Her Sixties 8 In Her Seventies and Beyond 9

3 How Women in All of Life s Stages Can Prepare for a Secure Retirement In 2012, Pershing challenged the financial services industry to elevate its approach to women investors with its influential whitepaper, Women Are Not a Niche Market. Pershing continued to explore this theme in 2015 with a follow-up paper, Women: Investing With a Purpose illuminating the fact that women investors often need a different approach to achieve their financial goals. This guide builds on the insights from both earlier publications to examine how women s challenges evolve over the decades as they prepare for retirement, and offers ideas for action steps they can take at any age from their twenties to their seventies and beyond. Preparing for Retirement: Even More Complex for Women When faced with the prospect of preparing for retirement, all investors must grapple with complex questions: How will the markets affect my portfolio? Will I see reductions to my Social Security? How healthy will I be? What am I not thinking of that might send a shock wave through my plans? Such questions assume more importance for women due to a variety of compounding factors: Longer average life expectancies Women who reach age 65 are on average expected to live 2.3 years longer than men who reach the same age. 1 Lower incomes during working years Women receive nearly 1/3 less compensation than men over their lifetimes. Gaps in employment Women may take some time off to care for aging parents or others. Lower savings levels Women have lower account balances than men despite needing higher ones women who retired in 2012 are expected to spend 15% more time in retirement than men (20.5 vs years). 2 Higher medical costs Women have a higher chance than men of being impacted financially by chronic or terminal illnesses. Higher taxes 80% of women in their final years will be single, facing higher tax rates than married couples do. 3 What can women do to overcome these retirement challenges? Plenty, if they make smart moves at every stage of life. 1 Social Security Administration. Calculators: Life Expectancy ( 2 OECD. Expected years in retirement. Society at a Glance 2014: OECD Social Indicators. s.l.: OECD Publishing Manisha Thakor and Sharon Kedar. On My Own Two Feet The Retirement Challenge: Dilemmas and Decisions Through Every Decade 3

4 In Her Twenties Limitless possibilities. Countless uncertainties. For many women in their twenties, life may present more questions than answers. They may still be considering whether marriage or children are right for them. Their career options are often broad and earnings potential very hazy. They may not even be thinking about retirement, as they are focused on meeting current financial demands such as rent, college loan payments and transportation costs. What s on her mind? Getting a good job Relationships and/or marriage Children soon, later or never? Balancing career responsibilities with enjoying life What are her overriding financial considerations? Preparing a budget Making college loan payments Saving or paying for a home, car or wedding Trying to save money simply for peace of mind What might she do to make retirement a priority? Sketch out a clear plan for: paying current expenses, paying down debt through loan repayments, and saving for major purchases such as a wedding, home or car Start small save a little every week in an interestbearing account, for emergencies such as a lost job or surprising expense Take advantage of her company s retirement plan, including any dollar match; if such a plan is not available, open an IRA and contribute to it monthly When You Start Saving Outweighs How Much You Save: Saving at 25 vs. 35 $450,000 $400,000 Savings $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $ Age Emily Dave Source: These 3 Charts Show The Amazing Power Of Compound Interest, Business Insider, 4

5 In Her Thirties Greater momentum. Expanding responsibilities. Women in their thirties are beginning to come into their own. At work, they may be achieving more and earning more. At home, they might be married and perhaps starting a family. As the stakes rise, so do the financial demands. She could be paying for a home, a car, child care and lingering student debt, while grasping that she needs to save seriously for the future. What s on her mind? Advancing her career Coordinating responsibilities and finances with her spouse or partner If single, considering future marriage or going it alone If she has children, thinking about their welfare What are her overriding financial considerations? Addressing new obligations such as a mortgage and family-related expenses Student loans and other debts may drain the budget The tradeoff in saving for college vs. for her own retirement What might she do to make retirement a priority? Explore lowering loan payments, by refinancing her mortgage and/or student debt Investigate 529 plans to begin saving for children s college and obtain tax advantages Maximize contributions to her company s retirement plan Take advantage of life, health and other insurance to provide protection against financial risk The Total Cost of a Four-Year Education Will Likely Increase Substantially Over Time $422,804 $400,000 $331,278 $300,000 $259,565 $203,376 $200,000 $175,684 $115,525 $147,443 $118,178 $100,000 $78,192 $90,517 $0 Age 18 Age 15 Age 10 Age 5 Newborn Current Age of Child Public, In-State Private Source: BlackRock, College Board, Trends in College Pricing Figures include tuition, food, room and board. Figures for age 18 based on costs for academic year. Estimated annual growth rate of 50%. The Retirement Challenge: Dilemmas and Decisions Through Every Decade 5

6 In Her Forties Bolder steps. Bigger challenges. By their forties, women typically have committed to specific life paths, whether pursuing a traditional career, starting a business, getting married or having children. They also may face big challenges: loss of career momentum by taking time off to raise children, divorce or taking care of elderly parents. They wonder how to meet near-term financial demands while carving out a measure of security in the future. What s on her mind? Preserving career momentum, especially if she has taken time off to care for children or elders If married, finding ways to share financial responsibilities with her spouse If single or divorced, achieving security without feeling boxed in Determining what college costs she can afford as children grow up What are her overriding financial considerations? Managing credit card debt Whether to refinance her home or other loans Getting the best financial aid package for children s college Whether her company retirement plan is the only savings strategy she should be focusing on Imagining how her financial picture would change if her marriage ended by divorce or premature death What might she do to make retirement a priority? Aggressively pay off high-interest debt Calculate how lowering interest rates on mortgages and other loans might free up cash today and/or reduce interest costs Learn about the financial aid process and execute strategies that mitigate family contribution expectations Maximize retirement plan contributions and save more, if necessary Calculate personal net worth and income needs independent of spouse s financial contribution Revisit insurance needs for financial protection 6

7 In Her Fifties Maximizing income. Multiplying demands. Women in their fifties don t have all the answers yet, but they know their own minds and how to make informed decisions at home and at work. In or approaching their peak earning years, they may still feel a squeeze: assisting aging relatives or supporting recently graduated children who can t find adequate jobs. With retirement quickly approaching, these women may feel that their savings aren t building up nearly as much as they d envisioned. What s on her mind? Staying alert to workplace changes that could disrupt her employment situation If married, managing the time conflicts present if both spouses have careers If single or divorced, considering proactive career moves to avoid dead-end jobs or layoffs Emerging health complications may surface now for parents entering their later years What are her overriding financial considerations? Mounting credit card debt Uncertainty about being on track with retirement savings Worry that unforeseen health issues may force early retirement Weighing and prioritizing debt payoff options (mortgage, etc.) Concern that parents are not financially prepared for health and long term care costs What might she do to make retirement a priority? Systematically pay off debt with highest interest rates Meet with financial advisor to clarify retirement scenarios: what she has, what she ll need, and a path forward Determine if investment allocation needs to change if nearing retirement or withdrawing funds for other needs Get quotes on long-term care insurance, or life insurance with riders that can offset health care costs Evaluate the benefits of accelerating mortgage payments Continue to maximize retirement plan contributions The Retirement Challenge: Dilemmas and Decisions Through Every Decade 7

8 In Her Sixties Life-changing decisions. Breathtaking opportunities. For many women, the sixties represent a decade of transformation. They may trade their careers for adventures ranging from travel, to charitable work, to launching long-imagined businesses. Parents may have passed away, and children may have married. The pace of change is brisk, and the financial decisions they must make are complex and highly important. What s on her mind? Whether to retire or keep working If married, coming to agreement about plans, priorities and timing for retirement If single, widowed or divorced, how to protect against potential health issues or financial setbacks Whether to downsize locally, move closer to children (if she has them), or pursue an entirely new retirement living arrangement What are her overriding financial considerations? Not retiring so early that lifelong income is uncertain, but also not so late that health problems limit her ability to enjoy retirement Social Security rule changes may reduce her anticipated benefit The specter of severe illness or burdensome long term care costs A desire to leave something behind to children or charity What might she do to make retirement a priority? Sign up for my Social Security account access ( to find out how much she can expect and determine when she should begin to receive her benefits Work with a financial advisor to discuss the pros and cons of retiring soon versus waiting until her late sixties or early seventies Purchase a long term care policy to address those potential costs Investigate new living options that might reduce monthly expenses Identify specific goals for a legacy, and consider gifts of real estate or valuables, or using investment assets to fund a trust Monthly Benefit Amounts Differ Based on the Age You Decide to Start Receiving Benefits This example assumes a benefit of $1,000 at a full retirement age of 66 $1,500 Monthly Benefit Amount $1,200 $900 $600 $300 $750 $800 $866 $933 $1,000 $1,080 $1,160 $1,240 $1,320 $ Age You Choose to Start Receiving Benefits Source: When to Start Receiving Retirement Benefits, Social Security Administration, August

9 In Her Seventies and Beyond Greater momentum. Expanding responsibilities. By age 70, most but certainly not all women have retired from their careers. Those who continue working often do so to bolster retirement savings, or simply to stay engaged with people and the community. They may encounter a range of challenges moving to a new home, losing a spouse, or dealing with health problems. But, the seventies and beyond are also a time of deep family involvement, personal exploration and thoughts of legacy. What s on her mind? Spending her time involved in meaningful endeavors If married, concerned that she may outlive her spouse for many years If single, thinking about how to preserve her financial independence If she has children and grandchildren, wondering how to have the greatest impact on their lives Preserving her health and ability to go places What are her overriding financial considerations? Outliving her savings Rising costs of medical care and inflation taking a toll on her buying power Whether to devote any time to generating income, to provide an extra measure of security Deciding if leaving a legacy is important and, if so, taking the right steps What might she do to make retirement more secure? Continue to keep part of her investment portfolio exposed to equities, to pursue growth and potentially offset inflation, or to leave to a legacy Determine whether her investments provide a consistent income stream and peace of mind If it makes sense to remain in her home, ensure that she can afford it and make appropriate financial decisions to maintain the property and meet other expenses If she is hoping to leave a legacy, establish the right vehicles and investments, such as trusts, charitable accounts or other options Longer Life Expectancies and Rising Expenses Male Life Expectancy 1 Female Life Expectancy 1 Average Retirement Age 2 Health Care Expenditures per Capita $147 $8,417 1 Source: National Center for Health Statistics, National Vital Statistics Reports. Web: 2 Source: National Center for Health Statistics. Health, United States, Source: Statista Inc., 2015 The Retirement Challenge: Dilemmas and Decisions Through Every Decade 9

10 10 Notes

11 Notes The Retirement Challenge: Dilemmas and Decisions Through Every Decade 11

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