Longevity, Women, And Social Security

It’s about more than her

by Marcia Mantell, RMA^®

Longevity is misunderstood by most clients. They simply can’t fathom living beyond 85 or into their 90s… let alone to 100. As of this writing, my family is planning my father-in-law’s 100th birthday in May. My mother-in-law will be 99 in April. My dad turns 85th this fall, and my mom 84.

Needless to say, longevity is not an abstract concept in my family. Rather, it is a reality that must be addressed and planned for. And it’s not just the women living long.

The Concept of Longevity vs Life Expectancy – Post-COVID

For the first time in decades, the Centers for Disease Control reports life expectancy in the US has declined. In 2021, after the initial waves of the COVID-19 pandemic, US life expectancy from birth dropped to 76.1 years from 77 years.
Sadly, this decrease in life expectancy since birth is not only a result of COVID-19. In fact, those who watch health trends sounded the alarm years ago. The decline in life expectancy—the age for a given population cohort when half of that group is alive and half has died since birth—is the result of some harsh realities. The five leading causes of death in America today are:

• Heart diseases on the rise
• Certain cancers without cures
• COVID-19 deaths still running high
• Accidental injuries, including drug overdoses and suicides
• Stroke

This overall change in life expectancy from birth is not particularly relevant data to your clients. You aren’t working with infants and toddlers on their retirement income plans. Overall life expectancy for those 65 and older barely budged between 2020 and 2021, from 18.5 years to 18.3 years.

Planning for retirement is based on longevity—the odds of living beyond average life expectancy. We begin planning for retirement assuming one makes it to age 65. That’s the gating factor. Clients must make it first to age 65. Once achieved, and there’s no guarantee, it’s time to look at the realities of living to 100. That’s longevity.

We Know Women Live Longer than Men

During March, Women’s History Month, the spotlight shines on women’s accomplishments, achievements, and their hidden histories. It is worthy to highlight their contributions to American success. We’ll also once again see and read how women live longer than men and their retirement planning needs to be different. That is true. But it’s not the entire story…

Actuarily speaking, women live longer than men. From our retirement planning perspective, that makes it important to plan for wives to outlive their husbands; and single women to plan longer. They need sufficient assets and income sources to ensure they remain comfortable in their 90s and beyond.

By the time people reach 65, women are becoming a super-majority. At birth, boys and girls each make up about 50% of the population. But things change quite dramatically as we age:

US Census Bureau, 2017 National Population Projections Tables: Main Series: Table 2. Projected age and sex composition of the population in 2025

It’s Critical to Address Ethnicity as Well as Gender in Your Planning

That women have always outlived men is fascinating. Many theories abound why women live longer. Suffice it to say, from a retirement planning perspective, we must plan for that likelihood. But your planning should be more nuanced than this “rule of thumb” would lead us to believe:

• In 1900, at birth, life expectancy for a white male was 46.6 years, only two years shorter than white females at 48.7 years.
• However, for Black or African Americans, the story was much different. From birth, life expectancy for males was 32.5 years and females only lived one year longer to 33.5.

Thankfully, 116 years later, both groups have gained longer life expectancies. But fascinating that women’s life expectancies got even longer relative to men’s:

• In 2015, white females had a life expectancy of 81.3 years vs. white men at 76.6 years. Therefore, plan for white females to live an additional 5 years.
• Black and African American females had a life expectancy of 78.5 years vs. men at 72.2 years, giving Black women more than 6 additional years. But overall, shorter odds than white counterparts.

But again, that’s just life expectancy from birth. That is not a retirement planning horizon. Look what happens to life expectancy when clients jump over the gate to age 65, or reach age 75:

Age, gender, and ethnicity all factor into longevity considerations as you create retirement income plans for each client. And another critical component to carefully plan for: men in high-income households.

Men Are Not Out of the Longevity Equation!

Once again, we’ll see that using rules of thumb are simply not adequate when planning for a client or couple sitting across the desk from you.

Financial advisors tend to work with higher income families who can afford to live in safer areas, have access to more nutritious food, and can pay for health care. All those factors lead to more complex planning to make sure no one runs out of money toward the end of retirement.

In a joint research project from Harvard, MIT, and Stanford colleagues, The Health Inequity Project, the team looked at the impact of income on life expectancy. (Terrific information at https://www.healthinequality.org/ ) Knowing that higher income generally leads to longer lives had not been quantified until this study. And, the numbers are stark:

• Low-income women have a life expectancy of 78.8 years vs. high income women at 88.9 years. A 10-year improvement for high-income women.
• Low-income men have an average life expectancy of 72.7 years vs. high-income men at 87.3, a whopping difference of 15 years.

There are three important points for financial advisors to take away:

1.) These numbers are only the average life expectancies, not longevity. Add another 10 years or more to the planning horizon.

2.) These numbers as based on reaching age 40. Getting to 65 would extend longevity.

3.) And, critically, there is almost no difference in life expectancy between men and women in the high-income group!

The difference in average life expectancy is only 1.6 years when clients live in households where income starts at $200,000.

Social Security Claiming Decisions Become Even More Important

Assuming the vast majority of your clients fall in the higher-income ranges, you aren’t only planning for women to live longer than men. You are planning for BOTH women and men to live a very long time. And, with married couples, one will not likely outlive the other for long.

The portfolio and income sources your clients have to work with become even more critical since they need to plan to cover two lives, not only one. So, spending even more time considering Social Security claiming is even more important. While getting clients to wait until 70 before claiming would be ideal, the goal is to help more clients get to Full Retirement Age (FRA) before they claim benefits.

Regardless of accumulated wealth, Social Security is the foundation of nearly everyone’s retirement income. And too many are claiming too early. The trend had been improving—fewer new retirees claiming before FRA. But with more retirements due to the pandemic, the rate of early claims is on the way up:

The data for 2022 claiming is expected in June.

Four Ways to Incorporate Longevity in Your Planning

Financial advisors must help both women and men gain a deeper understanding of their own longevity based on actuarial data plus income and ethnicity.

1.) Discuss longevity with clients (again and again) with latest data.

2.) Run retirement income plans with your client’s view of their longevity plus one with your expert recommendation.

3.) Higher income couples need to plan longevity for two: assume both people live to their late 90s, die one year apart.

4.) Encourage clients to wait till 70, if possible, to claim Social Security, or at least until the higher earner reaches FRA.