Take Steps To Bridge The Women’s Longevity Gap

By Ron Mastrogiovanni

Speaking frankly to married clients about the implications of survivorship is a critical service that financial advisors not only can and should provide but also are uniquely suited to address.

Given women’s longer life spans and the fact that women in opposite-sex marriages tend to marry men who are older than they are, women often must be prepared to cover their expenses single-handedly for years after their husbands die. Compounding the problem, widowhood will likely occur during a phase of life when health care expenses will be at their highest.

The financial and longevity disparities between women and men create a unique challenge. In our white paper “Addressing The Women’s Longevity Gap” we discuss the challenges women face in retirement, largely stemming from lower working salaries and greater longevity relative to men, making the threat of poverty quite real for millions of women.

Financial advisors have an opportunity to help married men and women plan strategically for the women’s longevity gap. A prepared advisor can help women mitigate — and potentially even eliminate — the unique financial challenges of the longevity gap by taking the following steps:

• Make financial plans based on personalized data and actuarial longevity.

• Address retirement health care costs today.

• Start Social Security optimization planning today (with a focus on survivor benefits).

• Discuss finances, including Medicare surcharges, for the surviving spouse.

• Plan for end-of-life costs for both partners.

Make Financial Plans Based On Actuarial Longevity

On average, a healthy 65-year-old woman is expected to live to age 89, compared to age 87 for a healthy 65-year-old man, according to actuarial data. Compounding this longevity gap, women tend to marry men two years older than they are, stretching the average length of widowhood by four years or more.

HealthView Services data indicates that a given client might live much longer or much shorter than the average, largely depending on how well or how poorly their health conditions are managed as they age.

Relevant, personalized data and actuarial longevity figures can help advisors pinpoint specific future costs, such as health care expenses. With this information, advisors can develop retirement income plans that are appropriate for their clients’ expected life spans and avoid overly conservative plans that unnecessarily restrict spending.

Plan For Retirement Health Care Costs Today

Three in five women age 60 and over say they are worried that their health care costs will exceed their retirement income, the National Council on Aging reported. On average, women pay more than men do for health care in retirement, primarily due to women’s longer life spans rather than increased use of medical services.

When comparing projected retirement health care costs between a healthy 45-year-old man and his 43-year-old wife, her costs are projected to be about $200,000 more. While that is a large sum, she can fund that amount by investing just $8,000 more today, assuming an investment in a balanced portfolio of 60% stocks and 40% bonds with an average annual return of 6%.

This example demonstrates the value advisors can provide by tackling retirement planning early with couples. The notable lifetime cost increases women face can be offset more easily with early planning for investments and insurance products. Advisors can sharpen the efficacy of these plans by using reliable, personalized actuarial health care cost projections.

Start Social Security Optimization Planning Today

Designed to replace 40% of preretirement earnings, Social Security benefits never expire. As a result, women on average collect more years of benefits than men do, but a couple’s decisions about Social Security will have a major impact on benefit calculations and the wife’s income during the longevity gap.

Social Security’s benefit calculations are based on a complex formula that tracks past earnings. Women tend to have lower earnings over their lifetimes due to their pay inequality as well as time spent out of the workforce caregiving for children, parents and spouses. Lower earnings produce a lower primary insurance amount, which is the starting point for all Social Security benefit calculations.

The following strategies can help female clients maximize the stream of income they receive from Social Security.

Delay retirement. Social Security benefits are based on the highest 35 years of Social Security-taxed earnings. Filling as many of those years as possible with employment is beneficial, especially with late-career, high-income years.

Delay Social Security filing age. Claiming benefits at 62, the earliest possible age, permanently reduces an individual’s retirement benefits, and yet it is the choice made by about one-third of women. Delaying benefits, especially if still working, ensures that women earn a higher income later.

Optimize Social Security from a household benefit perspective, including survivor benefits. Advisors should help couples maximize household income rather than looking at each spouse separately. Since many women will outlive their husbands, this approach is particularly important. For example, benefits for a man (Paul) who claims Social Security at 70 instead of at 62 will be 76% higher during his lifetime. After his death, his wife’s (Judy) survivor benefit would be 60% higher — a meaningful increase. As the lower-wage earner, a woman who is eligible for Social Security benefits may begin collecting her husband’s benefits and forgo her own, which are likely to be lower for reasons stated earlier.

Plan for benefits from former spouses. Women (and men) may be eligible to collect survivor benefits from a former spouse if they meet certain criteria. Making them aware of all of their claiming options can help maximize the benefits they ultimately receive.

Discuss Medicare Charges For The Surviving Spouse

Although Social Security is meant to replace 40% of preretirement income, other savings and investments comprise the remaining income stream and support a consistent standard of living. The sources that fuel retirement income are not treated consistently from either a tax perspective or by Medicare, making this another area where financial advisors have a real opportunity to shine for clients.

Known as means testing, Medicare’s Income-Related Monthly Adjustment Amount determines the surcharges paid for Medicare Parts B and D. These surcharges vary by income and marital status. But when one spouse dies, the survivor’s income threshold is reduced by 50%, despite the fact that many may reduce their household income by only 20% after the passing of a spouse. As a result, women may be pushed into higher surcharge brackets, potentially resulting in tens of thousands of dollars of additional costs.

A financial advisor could address this challenge well before it comes up, with the understanding that Medicare measures one’s means by modified adjusted gross income. Some forms of income, such as required 401(k) distributions, do count as MAGI; and other forms, such as health savings accounts, life insurance, annuities and Roth IRAs, do not. Therefore, advisors have a significant opportunity to help clients build a balanced portfolio of savings and retirement income vehicles that will limit taxes as well as substantial Medicare surcharges.

Plan For End-Of-Life Costs

Death can come very quickly, or it can be a slow, debilitating and expensive decline, but it’s an eventuality for all. Being prepared for significant end-of-life care expenses is not something couples will ever regret. Savvy financial advisors can help client couples plan — years before retirement — for the cost of end-of-life care.

In 20 years, a year of nursing home care is expected to cost $175,000, while a year of assisted living would run $100,000, with dramatic regional variations in costs. This consideration is crucial for women, who, on average, spend about two-and-a-half years in long-term care facilities at the end of life. That’s a full year longer than what the average man experiences because he has his wife to care for him.

Accurately planning for a man’s end-of-life care costs is critical to his widow’s ongoing financial security. But planning for her end-of-life care costs is critical to her experience. It will define whether she has suitable care options for her final years or ends up dependent on state support or her children.

Whether couples choose to buy long-term care coverage or free up additional cash to invest, or both, the steps they take now can help fill the women’s longevity gap with financial security.

Understanding their personal health outlook can help guide savings amounts and selection of the most advantaged vehicles to ensure a financially secure retirement and the ability to manage future health care costs without dramatic reductions to the couple’s hoped-for standard of living.

As their trusted advisor in these sensitive, important areas, you will earn their confidence, trust and referrals. And you will give your clients the invaluable: genuine peace of mind as they age.