Longevity in women can change plan
Will you live to be 100? If you’re a woman, your odds of becoming a centenarian are seemingly better than those of men. In the 2010 U.S. Census, over 80 percent of Americans aged 100 or older were women.
Will you eventually live alone? According to the Administration on Aging (a division of the federal government’s Department of Health & Human Services), about 47 percent of women aged 75 or older lived alone in 2010. If that prospect seems troubling, there is another statistic that also may: while 6.7 percent of men age 65 and older lived in poverty in 2010, 10.7 percent of women in that age demographic did.
Statistics like these carry a message: women need to pay themselves first. A phrase has emerged to describe all this: longevity risk. As so many women outlive their spouses by several years or more, a woman may need several years more worth of retirement income. So there is a need to consider income sources – and investment strategies – for the years after a spouse passes away.
What does this mean for the here and now? It means contributing as much as your budget allows to your retirement accounts. Procrastination is your enemy and compound interest is your friend. It means accepting some investment risk – growth investing for the long run is looking more and more like a necessity.
You will need steady income, and you will need to keep growing your savings. In 2012, Social Security income represented 50.4 percent of the average annual income for unmarried and widowed woman aged 65 and older. Having a monthly check is certainly comforting, but that check may not be as large as you would like. The average woman 65 or older received but $12,520 in Social Security benefits in 2012.
You will likely need multiple streams of income in retirement, and fortunately forms of investment, housing decisions and inherited assets can potentially lead to additional income sources. A chat with a financial professional may help you determine which options are sensible to pursue.
Your income and your savings must also keep up with inflation. Even mild inflation can exact a toll on your purchasing power over time.
Risk-averse investing may come with a price. In 2013, the investment giant Allianz surveyed Americans with more than $200,000 in investable assets and unsurprisingly learned that their No. 1 priority was retirement savings protection. What did surprise some analysts was their penchant for conservative investing during a banner year for stocks.5
Memories of the 2008-09 bear market were apparently hard to dispel: 76 percent of those surveyed indicated that given the choice between an investment offering a 4 percent return with protection of principal and an investment offering an 8 percent return but lacked principal protection, they would take the one with the 4 percent return.
A substandard return shouldn’t seem so attractive. If your portfolio yields 4 percent a year and inflation is running at 1 percent a year (as it is now), you can live with it. Your investments aren’t earning much, but the Consumer Price Index isn’t gaining on you. If consumer prices rise 3.3 percent annually (which was what yearly inflation averaged across 2004-07), you are barely making headway. You actually may be losing ground against certain consumer costs. If inflation tops 4 percent (and it might, if interest rates take off later in this decade), you have a real problem.
Cumulative inflation can really eat into things, as a check of a simple inflation calculator reveals. An $18.99 steak dinner at a nice restaurant in 2000 would cost you $24.54 today given the ongoing tame-to-moderate inflation over the last 14 years. That’s 36.3 percent more.7
As much as we would like to park our retirement money and avoid risk, fixed-income investments don’t always offer much reward these days.