New Reality, New Vision

Planning And The Influence of Gender

Helping women reach their retirement destination

by Tom Foster

E. Thomas Foster Jr. is head of strategic relationships for retirement plans for Massachusetts Mutual Life Insurance Co. (MassMutual).

Would you plan a trip with the expectation that your car would run out of gas five miles before reaching your destination?  Most people would say no.

Most of us do some rudimentary planning before we embark on any kind of outing or activity, making sure we have the time, resources and ability to reach our destination. It’s especially so when planning for retirement as many of us can expect to be retired for 20 or even 30 years. A crucial part of the necessary planning is ensuring that your retirement income lasts as long as you do.

And yet, the MassMutual Women’s Retirement Risk Study1 shows that women on average anticipate that their retirement will last 25 years but their income will stretch only 20 years. It’s a stunning retirement planning gap and, unfortunately, a formula for poverty for many women in old age.  On average, women retirees and pre-retirees expect to spend two more years in retirement compared to men, according to the Women’s Retirement Study. However, women expect their income will fall five years short compared to men who anticipate their income will provide a two-year cushion, according to the study.

Women Are Unsure How Long Savings Will Last

Women are also less likely than men to accurately project how long their savings will last in retirement, the study finds. Nearly half of women (43 percent) are unsure of how long their savings will last compared to one third of men. Notably, the difference is driven by the 46 percent of pre-retirement women who say they don’t know how long their income will last.
On a positive note, the study finds that women express greater openness to financial education and getting professional financial advice, both of which are critical if this problem is to be corrected.  Financial advisors can play a big part in helping educate female clients about investing and financial planning, especially when it comes to retirement.

Overall, the study points to several reasons why women may anticipate more financial difficulties in retirement than men. Those include being less confident about managing savings and investments, optimizing Social Security, replacing a higher percentage of their pre-retirement income, and taking investment risk. All of these issues are topics for education.

A good starting point is income replacement
Only about a third of both men and women say they will need to replace at least 75 percent of their pre-retirement income when they retire, the study shows, with 41 percent of men and 45 percent of women saying they will only need 50 percent or less. Retired women (40 percent) are more likely than retired men (28 percent) to say they need to replace less than half of their pre-retirement income to live comfortably.

One benchmark for retirement preparedness used by many advisors is the ability for retirees to replace 75 percent of their pre-retirement income from all sources, including retirement savings, Social Security and a pension, if available.

Managing Social Security Benefits
Women need to better understand claiming strategies that can boost their retirement income. What may also help is to review what women may expect as a Social Security beneficiary since women tend to outlive their husbands. MassMutual’s study showed that pre-retired women (62 percent) are less likely than pre-retired men (70 percent) to say they know how to make the most of Social Security.

Growing Investments

An important touchstone for advisors and their female clients is the need to generate at least some growth from investments to maintain their lifestyles as they grow older. While nearly all women say they want their investments to grow during retirement (97 percent), women are less comfortable with investment risk than men and tend to believe they should become considerably more conservative in retirement than their male counterparts, according to the study.

Women who work with a financial advisor (72 percent) are more likely to say their advisor recommends that they invest more aggressively.  It’s another point that advisors need to address, helping ensure their female clients keep up with inflation in future years and have the assets they need to cover the increasing costs for medical care and long-term care that are often associated with the later years of retirement.

One of the most important steps for women to take in planning retirement is to check and adjust sooner and more frequently than men. You can’t close a retirement income gap if you don’t know one exists. So it’s prudent for women to get started on closing any “retirement income gap” by taking steps to plan sooner rather than later, regularly reviewing their goals and especially their progress in accomplishing them.

Gap Analysis

Because many women who have children and other care responsibilities move in and out of the workforce or work part time during their careers, their Social Security payments may actually be less than they anticipate...

A logical place to start is for financial advisors to recommend that women conduct a “gap analysis” as soon as possible. A gap analysis compares a client’s projected income with his or her projected expenses in retirement to determine if the person may be left with a potential shortfall or “gap.”

Many people take this step just before retirement to double-check their readiness before actually retiring. But a gap analysis is really a financial planning technique that should be employed much earlier in the game, and in the case of women, as early as possible.

Start the analysis by projecting retirement expenses. Will your client have a mortgage or rent? Will there be condo fees? What will property or real estate taxes cost? And don’t forget federal, state or, in some instances, local income taxes.
There are costs for food, clothing, car payments, property and life insurance, phones, cable and internet connections, and utility costs for electricity, gas, oil or all of the above. What does your client anticipate spending for entertainment such as dining out, concerts, movies, sporting events, country club memberships or other recreation and hobbies? Gifts and fun with children or grandchildren can also be significant. How about home maintenance costs such as caring for lawns and gardens? Vacations costs should be included as they are very much a part of someone’s lifestyle.

Healthcare: The Elephant In The Room

The elephant in the room for many clients is the cost of healthcare, which often escalates as people age and start experiencing serious health problems. How much does your client anticipate spending on healthcare, including Medicare supplement plans, and does she have money set aside or insurance coverage to pay for potential long-term care expenses?

The last years of retirement are typically when healthcare and long-term care costs are the highest and the inability to pay for them can seriously compromise a retiree’s comfort and well-being.

Once you project retirement expenses, go to work on your client’s likely sources of income. Does she have a pension or cash balance plan that can be expected to generate income? How much income can be expected from retirement savings, depending upon your client’s anticipated age at retirement, current savings habits and returns based on her risk tolerance?

Social Security is a big factor for most people. While working Americans are eligible to begin Social Security retirement income at age 62, the payments increase by 8 percent for every year your client waits to take the benefit until age 70. Because many women who have children and other care responsibilities move in and out of the workforce or work part time during their careers, their Social Security payments may actually be less than they anticipate.

Getting Serious…

With income and expense projections in hand, you can determine if your client has an income shortfall or “gap.” That’s when the serious conversation starts about lifestyle expectations and choices, the person’s ability to potentially save more, reallocate their savings to different investments or make other changes. The sooner these issues are raised, the better, to give your client more time to make the necessary adjustments to achieve financial security.

Each client’s goals for retirement are personal as is the journey to get there. So the discussion about plugging your client’s retirement income gap could involve a variety of approaches, including saving more, spending less, working longer, putting off taking Social Security, working in retirement, buying an annuity for guaranteed income, or some combination of these approaches.

The sooner your female clients determine whether they are on track for retirement or not, the better.  Having more time allows the power of compounding to work for their investments gives them more options and choices to potentially close any gap. So get started right away on conducting gap analyses for all of your female clients and retirement plan participants.

Nesteggs: Top Off The Tank
When discussing retirement planning, it might be helpful for more women to associate their retirement savings with putting gas in their car. Equate retirement to a long car trip that may be longer for many women than men, a trip that women must make sure to have enough fuel to last the entire journey. Managing their fuel by saving more, preserving their assets for the long term by keeping them invested, frequently checking their fuel gauge, and understanding how to manage their other resources may help more women avoid running out of gas and cruising more comfortably throughout their retirement. ◊



1. The MassMutual Women’s Retirement Risk Study, July 2018,