By Sarah Ruef-Lindquist, JD, CTFA
Beyond medical care, one of the few differences for how professionals approach women as compared to men is in the area of financial planning. Of course, this is has to do with differences largely beyond a woman’s control, but thoughtful recognition of the differences can have a tremendous impact on women’s financial lives.
One might assume that a longer average life expectancy – 6 years longer – for women is a good thing. It is, but you have to cover living expenses for those additional years.
When over your working years you have earned on average 79 cents for every dollar earned by your male counterpart, the challenge of paying for that longer life expectance grows. Lower earnings impact not only what one can set aside and save for retirement, but likely the amount contributed to retirement by an employer and the amount ultimately available from social security as well.
Combined with years out of the work force for child-rearing and/or caring for aged family members and you have the ‘perfect storm’ of inadequate resource to support a woman who will likely outlive a male spouse.
When advising women, we want to focus on several options, including elections that can be made on a spouse’s pension and maximizing benefits for them down the road. For instance, some couples may want to elect a higher immediately payout on retirement and forgo a future spousal benefit, but this is usually not a good idea for down the road when the surviving spouse- especially if her benefits alone are significantly lower and she is any number of years younger than her spouse, has less to live on. They will lose that income with the death of their spouse.
For widows or divorced women who were married at least 10 years to their spouse and have not remarried, we want to be sure they consider elections available to them as surviving or former spouses. Many divorced women learn that they are entitled to a social security amount, that though 50% of their ex spouse’s benefit, amount exceeds 100% of their own. Electing to receive the 50% spousal benefit in no way diminishes the ex-spouse’s benefit, but can improve their own income outlook for the rest of their lives.
Surviving spouses who do not remarry have several elections: Depending on their age and whether they are caring for a disabled child or a child age 16 or younger, they can elect current benefits as survivor, defer taking a higher benefit and continue working and even switch to a higher benefit at full retirement age or later. The optimal strategy will depend heavily on the need for income and health status. If one is in poor health, a common strategy is to begin benefits as early as possible to maximize how much is available before death. For a healthy spouse with a family history of longevity, a strategy to maximize the income over a long period of time may be preferable. Of course, this must be balanced with the need for income.
Women may have more years ahead than many men; careful planning can help the quality of those years. Of course, it’s always best to get advice from your financial advisor before making any decisions or changes in your financial plans. Talk through your options with a professional who knows your income and overall financial situation.
By Sarah Ruef-Lindquist, JD, CTFA