Announcement: SOA releases June 2019 Exam STAM passing candidate numbers and congratulates the new FSAs for August 2019.

Financial Information for Women

Financial Information For Women

By Anna Rappaport

Many women may be confronted with periods of widowhood lasting 10, 15 or even more years in retirement. Besides the intense emotional toll of losing a spouse, they also face significant financial risks including potentially outliving their accumulated assets so that they must rely solely on Social Security for their basic needs. In many cases, funds that were intended to support the couple throughout retirement have already been depleted for a variety of reasons, including defraying the escalating costs of a long illness. Consequently, in such instances, the surviving spouse may be faced with lower income, depleted assets and additional accumulated debts. For women, the financial implications are usually more dire because they may find it more difficult to re enter the workforce, if feasible, because of previous time spent not working due to family responsibilities.

What can be done now to prepare for this potential situation? Here are some basic issues to consider in planning for the possibility of being alone.

Social Security

It costs one person about 75 percent of what a couple must spend for basic necessities. Even Social Security does not pay a surviving spouse 75 percent of what the couple received. In a two earner family with equal earnings, the surviving spouse receives a Social Security benefit of only half of what the couple had received. In a single earner family, the surviving spouse receives a Social Security benefit of only two thirds of what the couple received. It is important to factor in this shortfall in funds that Social Security provides to surviving spouses when developing a retirement plan.

Private Retirement Income Sources

In the event of the death of a spouse, whether other sources of retirement income will continue depends on the particular provisions of each plan. Couples should usually elect survivor provisions, when available, in pensions so that income will continue. When there is an option to receive pension benefits in the form of a lump sum, the couple should carefully review all options including the amount of annuity income available and what benefits would be payable to a surviving spouse or other dependents. The total portfolio also needs to be considered as to priorities with regard to income versus bequests. A decision to take a lump sum should be made considering a variety of scenarios for the couple after retirement age, including instances of prolonged illness or the possibility of one partner living into the 90s or even passing the century mark. Where there is no choice but to take a lump sum from a qualified retirement plan, there are several ways to preserve the funds including rolling it over into an Individual Retirement Account or converting it into a joint and survivor annuity. In any case, if there is no survivor income as part of the plan, purchasing life insurance is one way to provide the necessary resources to protect the surviving spouse. Decisions about lump sums versus income are also impacted by the fact that often different options may not have the same actuarial value.

Family Finances and Records

Women need to be sure that they understand the details of the family finances and where the accompanying records are kept. Often, one partner handles the finances without explaining or sharing the information. This can leave the other partner very vulnerable if responsibility for the couple's finances must be suddenly transferred. A surviving spouse may fall victim to unethical advisers intent on exploiting the situation. As a general rule, invested assets should be diversified and allocated appropriately for the time horizon. Couples with a significant amount of guaranteed income can afford to take a greater risk with the remainder of their investment portfolios than those who must depend primarily on the portfolio for their regular income.

Health Care Needs

Another major issue to consider with regard to the issue of asset depletion is the need for medical and long term care protection for the couple. These costs, which in recent years have escalated dramatically, can easily and rapidly deplete assets. It is important to consider how medical costs would be paid if either spouse decides to retire prior to Medicare eligibility. Possible sources for health care coverage include group benefits from the former employer of the retired spouse or if one of the couple is still working, the current employer. Individual health coverage is an option, but it is normally medically underwritten and may be prohibitively expensive or unavailable to some retirees. Another health related need, long term care, should also be included in a couple's retirement planning. Long–term care insurance should be evaluated as an option particularly for those couples with levels of income and wealth, where the cost of the insurance would be affordable, but the consequences of a prolonged stay in a nursing home could prove financially devastating. Other couples may find the cost of this insurance simply unaffordable given their expenses, while those couples with substantial wealth may be able to self insure the costs of long–term care.

Having a well thought out and carefully developed retirement plan now can help provide crucial support when, if unfortunate events occur, it be needed the most.

Anna Rappaport is an independent consultant, activist, speaker and author. She can be contacted at: anna@annarappaport.com