Why Women’s Retirement Planning Needs to Go Beyond a Longer Life Expectancy
The special retirement planning needs of women involve more than extended life expectancy over men. They include issues such as divorce, family, work history, care giving responsibility and healthcare costs.
October 11, 2011
Ellen admits that she is probably a prototype for everything that can go wrong in a woman’s financial life. Now 68-years-old, her financial life since her divorce at age 40 has left her with very little for her retirement:
Unfortunately, Ellen’s story is not unusual. Divorce, staying home to raise children, intermittent working history, cares-giving responsibility and ongoing support of adult children, all of which have combined to provide Ellen with a financially unstable retirement. True, some of her problems were of her own making — it is always easy to criticize a mother (or father) for supporting their adult children if they are not your adult children. But because Ellen’s story is not uncommon, it is important to understand the special retirement planning needs of women.
More women than men worry about being able to afford healthcare and long-term care in retirement. As Ellen’s story shows, women have reason to be worried according to a new report by the Scripps Gerontology Center at Miami (Ohio) University and the MetLife Mature Market Institute, Women, Retirement and the Extra-Long Life (September 2011).
Women are aware that they are more likely than men to live into their 90s and that their life expectancy is eight percent longer than that of men (the life expectancy for women is 84; for men it is 81). This means that women will spend, on average, 22 years in retirement versus 19 years for men. As the study points out, however, the majority of women do not plan for the added financial needs this longevity imposes. In fact, only 34 percent of women responded that they are responsible for retirement planning in their households.
The CPA planner should look at this lack of additional planning by women as an opportunity to serve that market. Whether a woman is single or married, the need for the special planning needs is obvious, but often underserved.
Other Issues for Women in Retirement
But long life is not the only reason women and their advisor need to address women’s retirement needs. Other issues include:
The Advisor’s Role
Unfortunately, despite their greater need for planning, women lag behind men in calculating their financial needs in retirement. According to the Scripps survey, only 55 percent of women have calculated their retirement income needs compared to 65 percent of the men. When it comes to estimating expenses, only 44 percent of women have done the calculation compared to 58 percent of men. Among couples, only 34 percent of women indicate they are responsible for financial planning in their home compared to 61 percent of the men.
Whether working with a single woman or a married couple, CPA planners must be sensitive to the special retirement-planning needs of women. It begins with education. For a single woman, projections should include the longer life expectancy and a discussion of her potential need for long-term care. In the case of a married couple, it is just as important that the husband understand the special planning needs of his wife should he pre-decease her, just as she should.
The special financial planning needs of women are an important, growing market for financial advisors. With a little education, CPA planners are in an excellent position to provide real value to all women, especially those all too familiar with Ellen’s story.
James Sullivan, CPA, PFS, works with his wife, Janet, who is an elder law attorney in Naperville, IL.
* The AICPA’s PFP Section provides information, tools, advocacy and guidance to CPAs who specialize in providing tax, retirement, estate, risk management and investment advice to individuals and their closely held entities. PFP Section members, including PFS credential holders will benefit from additional resources on this topic in Forefield Advisor on the AICPA’s PFP website at aicpa.org/pfp. All members of the AICPA are eligible to join the PFP section. For CPAs who want to demonstrate their expertise in this subject matter, apply to become a PFS Credential holder.