In many instances, retirement planning for women is even more important than it is for men. The stakes are higher for women, according to Eve Kaplan in the Forbes magazine article “Women Face Higher Stakes in Financial Planning. Here’s What You Can Do.” Single women face the greatest longevity risk challenges, even if they are widowed or divorced. Not only do women typically live longer, they also usually have less money with which to finance their retirement. Single women face greater challenges than single men or couples do when it comes to retirement planning and creating an income stream that they cannot outlive. Luckily, women tend to be the most open to financial advice from professionals. It’s important for all women to sit down with a financial expert to plan their retirement by evaluating their goals, investments, taxes and retirement planning options.
Deferred fixed annuities are one of the best tools women can use to finance their retirement. The article recommends waiting to purchase a fixed annuity until interest rates are higher, but you can also ladder purchases to take advantage of future interest rate increases. They use the example of a 57 year old woman who will use $250,000 to purchase a fixed indexed annuity in three years, when interest rates will likely be higher. This amount of money is only 15% of her total investments, so she has plenty to finance the earlier years of her retirement. Between investments and Social Security, she can finance from her retirement age to 80, when her deferred fixed indexed annuity will start paying her monthly income for the rest of her life. Since the woman in the example has parents who are still living at an advanced age, there is a good chance that she will also live a long life. Her advisor chose an indexed annuity for her to help account for inflation in the future, even though the cost is higher than with a traditional fixed annuity. Social Security will actually be the first annuity that this woman uses. By delaying Social Security payments until age 70, she will receive higher payments and will further protect herself from longevity risk. The government has shown strong support of using annuities for retirement planning lately by their changes to annuity rules for 401k plans and IRAs. The deferred fixed indexed annuity payments this woman will receive starting at age 80 will ensure that she does not outlive her assets.
There are a few other ways for women to protect against longevity risk that are mentioned in the Forbes article. Work with your advisor to make sure that they are planning for you to live until age 95 or more, especially if you are in good health and have a family history of longevity. This would mean keeping more money in stocks into your 70’s to take advantage of stock market gains earlier in your retirement. Fixed indexed annuities help you keep stock market exposure as well without the risk of losses in the market. Another option to help lower expenses in retirement would be to move somewhere that has a lower cost of living if you live in a high cost area before retirement. This move obviously has to make sense for you personally, but it is something to consider if you have family or friends in a low cost area of the United States or abroad. If most of your assets are in your home and you plan to stay there for the rest of your life, a reverse mortgage could be a way to help you lower your longevity risk and receive income payments from your home’s value.
If you are concerned about longevity risk and are planning for your future retirement, speak with an Annuity FYI expert to help you determine if a deferred fixed annuity is right for your financial plan. Single women carry the most longevity risk, so plan accordingly and make sure that your retirement is financed with a guaranteed source of lifetime income.
Written by Rachel Summit