5 Retirement Risks Every Woman Should Know (and Plan for)

For the average American woman, the odds are good that at some point she’ll be managing her finances on her own.

That isn’t just because women outlive men by about five years, but also because many women these days choose to remain single or don’t remarry after a divorce. According to the most recent numbers, women are the primary breadwinners in at least 40% of U.S. households. And their economic influence and personal wealth are expected to keep growing.

And yet, women still lag behind when it comes to overall financial literacy. Just an example: On one assessment of financial literacy, men answered 56% of the questions correctly — a 5 percentage point improvement over 2017. Women answered 47% of the questions correctly, a disappointing 1 percentage point drop from 2017.

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That’s a problem because, as you might expect, the same study found a strong link between the number of questions respondents answered correctly and several indicators of financial wellness, including saving and planning for retirement.

The financial planning a woman does now will determine how she’ll manage later, when she’s no longer earning a paycheck. If you’re married, that planning can be a team effort, but you can’t just sit back and hope your husband figures it all out for you. I’ve seen so many women who have been devastated when vital income streams disappeared because they divorced late in life or were widowed.

Women don’t want to just survive; we want to thrive. And to do that, you must have a plan that covers all the risks you might encounter in retirement, including:

Income risk

In retirement, your income is your outcome. The challenge is to maximize each of your income sources so you never need to worry about outliving your money. The Social Security claiming strategies for a woman who is married, widowed or divorced can be drastically different from those that apply to someone who never married. Because everyone’s situation is different, running a Social Security maximization analysis can be a good first step. The analysis will look at all your sources of income, your age and your marital status to help you determine what’s best for you.

Deciding on which pension benefit to choose also can be more complicated for married couples. A life-only payout likely will be higher, but it means when the pension holder dies, the income stops. If you’re married, and you both will rely on this income, you may want to choose a joint life pension payout. And no matter what your marital status is, you’ll also want to plan how you’ll withdraw income from your retirement accounts. You’ll have to do some research, but that knowledge will empower you.

Asset allocation risk

As you move toward retirement, it’s important to change your mindset from accumulation to preservation. Of course, it’s always a good idea to track how your money is invested, but in the years just before and after retirement, it’s especially critical. Whether you’re a DIYer or working with an adviser, you should have a plan that suits your risk tolerance (your ability and willingness to bear a potential investment loss) and your time horizon (the number of years remaining until you plan to retire).

If you have several years left before you retire, you may be willing to take more risk. But if you plan to retire in the next five to seven years — and you won’t have time to recover from a big market loss — you may benefit more from a plan that focuses on diversifying your investments with a goal of helping protect your nest egg.

Implementing a “bucket strategy” can help you balance your needs over time. It should include:

• A safety bucket, with money that is easily accessible and always there for emergencies.
• An income bucket, with investments that will provide reliable income throughout your retirement years.
• And a growth bucket, with investments, such as stocks, that have the potential for growth to keep up with inflation.

As you get older and closer to retirement, you should be taking less risk, but if you have your emergency fund and income taken care of, you can afford to be a bit more aggressive with the stocks in your portfolio.

Longevity risk

According to the Social Security Administration, a woman turning 65 today can expect to live, on average, until age 86.5. About one out of every three 65-year-olds today will live past 90, and about one out of seven will live past 95. Women often have less money in their retirement accounts and a smaller Social Security benefit because many took time away to care for their children, grandchildren or parents. That means women need to plan carefully for decades in retirement and all the financial ups and downs that could occur during that time.

Working with a financial adviser who focuses on retirement planning — and not just investing for growth — can help. Put a priority on income streams, and talk about products and strategies (such as life insurance and/or annuities) that can help provide a retirement paycheck no matter how long you live.

Inflation risk

Anyone who remembers a time when gas prices were under a dollar knows what inflation is. But it’s another thing to understand the impact of inflation on a retirement plan. Though you may see a slight cost-of-living bump in your Social Security benefits and pension each year, you’ll likely still need to put your own inflation protection plan into place to maintain your purchasing power as you age. That might include keeping some percentage of your money invested in stocks or mutual funds for long-term growth potential and/or downsizing your expenses as the years pass.

Tax risk

It’s a mistake to assume your taxes will automatically go down in retirement because you’ll be spending less money. If you plan to keep the same lifestyle, you’ll likely need the same income. And don’t forget: The money you’ve saved in an IRA or 401(k) isn’t all yours to keep. You’ll pay ordinary income tax on any withdrawals you make from tax-deferred retirement accounts — a cost you can’t escape once you turn 70½ and must take required minimum distributions (RMDs).

You might have heard the old saying that it’s not how much you make, it’s how much you keep. If you haven’t already, you may want to look at diversifying the way the money in your nest egg is taxed — perhaps by converting some of your savings to a Roth account, which features tax-free growth and withdrawals in retirement.

Health care risk

You’ve probably seen commercials warning that Medicare doesn’t cover all health care expenses. A good Medicare supplement can help with some basic costs, but you’ll probably still have to deal with medical bills as you age. And you’ll still need a plan to cover the possibility of long-term care needs. According to the 2019 Genworth Cost of Care Survey, the national median cost of a semi-private room in a nursing home is $7,513 a month. If you or your spouse needs special care, it could quickly deplete your nest egg and leave you without the resources to carry on comfortably. There are products available to help deal with these expenses, including traditional long-term care insurance, hybrid annuities that come with a long-term care rider or permanent life insurance policies that allow for an acceleration of the death benefit to help cover costs associated with qualifying long-term care. But you’ll have to do some homework to find the one that best suits your needs and budget.

If you’ve been diligently putting away money for retirement, but you aren’t sure where you stand when it comes to the above concerns, talk to an independent financial adviser who focuses on retirement and helping maximize your savings. If you already have an adviser, but you don’t feel as though you’re getting answers or access to the products and strategies you need, it might be time to move on. Look for someone you can speak with comfortably, and who is a fiduciary you can trust to look out for your best interests.

Kim Franke-Folstad contributed to this article.