Posted on 08 July 2009
By Mark Miller
Here’s some bad news for men: We don’t live as long as women. But there’s bad news for women, too: you might live too long–financially speaking.
Women face a greater longevity risk–the danger of outliving their assets and experiencing poverty in old age. The average life expectancy for a 65-year-old American woman is 20 years, or 85 years of age–three years more than a man. And those figures are just averages, which means many women will live well beyond 85.
But longevity isn’t the only factor at work here. Our retirement benefits system is tied closely to the amounts we earn during our working lives–and here, men continue to be far ahead. The non-profit Women’s Institute for a Secure Retirement (WISER) offers the following statistics:
–Women work at paid jobs an average of 12 years less than men do over their lifetimes due to family care giving responsibilities. Fewer work years translates to fewer years saving or participating in an employment-based retirement program. It also means lower Social Security benefits.
–Women earn 78 cents for every dollar earned by men.
–Less than one-third of retired women today receive pension income. And less than half of today’s working women have access to a pension or retirement savings plan through their jobs.
As a result, nearly 40 percent of older women living alone depend on Social Security for almost all of their income and more than half would be living in poverty were it not for their Social Security benefits. In 2007, 20.5 percent of unmarried women age 65 and older had income below 100 percent of the federal government’s definition of poverty-far higher than rates experienced by men or married couples, according to Census Bureau data.
Part 2: A closer look at a particularly useful product for generating retirement income–the income annuity.
WISER’s director, Cindy Hounsell, has been working for more than 10 years to draw attention to the general problem of retirement security for women. Recently, she has been trying to turn up the volume on one particular question: how to get more guaranteed income for women in retirement.
“The discussion usually focuses on the accumulation of retirement assets,” she says. “Retirement experts tell us to save enough to pay our costs over our life expectancy–but we don’t need life expectancy income. We need lifetime income.”
Translation: In the wake of the market crash, it’s clear that voluntary investing in defined contribution vehicles such as 401(k)s and IRAs isn’t going to cut it. Along with Social Security, we’re going to need greater emphasis on products that generate predictable income in retirement.
WISER recently released a study–billed as a “blueprint for change”–that surveyed more than 30 experts from government, the financial services industry, and professional and academic organizations on ways to address the problem. It’s a valuable effort to shift the focus away from defined contribution programs–such as 401(k)s and IRAs–and toward income generation.
The solutions pointed to by the study are useful–and not just for women. The report describes the need to move toward a greater use of products like income annuities, long-term care insurance policies and even reverse mortgages.
None of these products have caught fire when compared with the broader defined contribution and defined benefit pension markets. Privately purchased income annuities, for example, represent only about 2 percent of total household income received by current retirees. Reverse mortgages have been gaining ground in the wake of the housing crash, but have been hampered by high fees and problems with predatory lenders. Long-term care insurance policies also haven’t sold very well, due to their price, complexity and lack of flexibility.