041: Women in Retirement
Mar 5, 2021
Why is it important for women to have a written income plan? Why is it more important for women than men? It’s simple: 80% of all men die married, while 80% of women are single when they pass away. To make matters worse, 50% of all women die broke.
Women need more than someone who charges them a fee to manage their investments. They need someone who can provide them with answers to tough questions, who can help them understand how their spouse’s financial situation applies to them, and how to address problems relating to taxes and inflation.
On today’s episode, we’re talking about how an income plan helps tackle these challenges. We explore how women can get the financial education they need, craft a strategy to figure out where their money is coming from, and how to make sure it’s going to last.
Here are just a handful of the things that we'll discuss:
- Why running out of money in retirement is like running out of oxygen while climbing Mount Everest – and why it happens to 50% of women.
- The added costs women face in retirement when compared to men.
- The average amount women need to save to cover out of pocket healthcare costs in retirement.
- What women need to know about Social Security and life transitions, including divorce.
- The value of Roth conversions.
- Why you shouldn’t bother looking at the ups and downs of financial news every day.
- How to build a risk budget.
- “Knowledge equals power, that’s actually untrue. You actually have to take action on the knowledge for it to equal power.” – Ed Siddell
LeAnne Siddell: It’s The Retirement Trainer with Ed Siddell, a podcast about finding ways to help you become financially fit for your future no matter what financial shape you’re in now. Women in retirement, why is it important for women to have a written income plan? Why is it more important for women than men? This is LeAnne Siddell and here to help us with all of our questions and to give us some guidance to help us stay in the best financial shape possible, The Retirement Trainer, Ed Siddell. Hello, Ed.
Ed Siddell: LeAnne, what’s going on?
LeAnne Siddell: Okay. Well, we’re coming on this subject of women in retirement and we are focusing in on why it’s more important for women to have this written income or strategy in place than it is for men. Why is that?
Ed Siddell: It’s all about the math.
LeAnne Siddell: I knew you were going to say that.
Ed Siddell: It is. For me, I say it all the time because how about this statistic, right? 80% of all men, including me, we die married while 80% of women when they pass away, they’re single. So, think about that. Yeah. That’s a big deal.
LeAnne Siddell: Yeah. We don’t want to talk about all the reasons why women live longer than men but let’s just…
Ed Siddell: I’m not saying a word.
LeAnne Siddell: Oh, yeah.
Ed Siddell: No. The reason that everyone needs an income plan, but especially women, I always use Mount Everest as an example. When people are climbing the retirement hill, they’re putting money away, they’re saving, and they get to that snowcap, the very peak, right? Think of that as 5 to 10 years before retirement. That’s kind of like the danger zone. And when you’re climbing Mount Everest, you don’t just say, “Today, I decided I’m going to go do it.” You need a plan, you need a guide, you want to make sure you have all the proper equipment, and you need to have enough oxygen to make it. And so, think of money as your oxygen. Well, everyone thinks the hardest part is making it up to the top. All right. The hardest part, the most dangerous part is coming down the other side.
LeAnne Siddell: And not like falling off a cliff.
Ed Siddell: Well, you know what, it’s actually running out of oxygen. I mean, that’s the number one. So, that’s why people don’t make it down from Mount Everest and it’s the same concept when it comes to retirement. So, that’s why having that plan, having an income plan is so important to make sure that you don’t run out. When we talk about the retirement fitness plan, it focuses on all five things that you have to have in retirement to be successful, the income investments, tax planning, health care planning, legacy planning, which is your estate planning, wills, trust. And we know that most people just like most advisors just focus on the investments. But those people that are entering that danger zone, most of the people that we work with, especially a lot of the women, they’ve graduated, they’ve entered that whole new phase in their life, and they need more than for someone to charge them a fee just to manage their investments. They need answers, right? Do I have enough money? Am I going to run out? What happens if my husband passes away or my spouse passes away? What happens to their social security, their pension? How does that affect me? What if we’re going through a divorce? What does that transition look like? And now I’m single. How does that all affect me?
And guess what, taxes go up, inflation hits, and your investments can’t answer those questions but what can is an income plan. Having a strategy to figure out where your money is coming from, that’s why it’s so important, especially because women live longer than men. They need to make sure that that money is going to last.
LeAnne Siddell: Yeah. We’d like to say that we’re the healthier ones but I don’t know that that’s always the case. So, you go into some stats here.
Ed Siddell: Yeah. So, these are eye-opening stats. So, almost 50% of all women die broke. Think about that.
LeAnne Siddell: Scary, yeah, very.
Ed Siddell: 90% of all women so this was a study done by Allianz Life Insurance, one of the largest, not just financial companies, but one of the largest companies in the world. Okay. And when they did these studies, they also realized that 90% of all women realize that they needed a better understanding. They needed more knowledge of their own finances so that that way they’re comfortable with retirement. And that’s a really big deal because as we’re talking here right now, 44% of all women are either widowed, divorced, or single. So, that’s reality.
LeAnne Siddell: Yeah. That is definitely a reality and I think just knowing how women look at things forecasting-wise, there’s a lot of buckets that we keep floating above the water at given times as far as…
Ed Siddell: Yeah. You guys are multitaskers.
LeAnne Siddell: Yes.
Ed Siddell: Well, and that’s why you’re really good at everything that you do, and we can’t as men. You’re able to juggle 10, 15 balls in the air and we’re lucky if we got, you know.
LeAnne Siddell: Well, just speaking for myself, sometimes I think I can barely keep them all in the air.
Ed Siddell: I think we all feel that way especially over the last year.
LeAnne Siddell: Yeah.
Ed Siddell: But, again, some more statistics and when we’re talking with women as well, women 65 and older, they are more likely to be impoverished than men of the exact same age. And women need more money set aside for out-of-pocket health care costs than men do.
LeAnne Siddell: Because we go to the doctors more than you.
Ed Siddell: Yeah. It’s 10% to 15% more than men. That’s a lot of money when you consider the average woman needs about 150,000 to cover retirement health care costs out of pocket. So, if you’re not accounting for that, then, yeah, you’re going to run out of money.
LeAnne Siddell: Well, and I think this last one that we discussed at an earlier time, but you’re going to bring it up is the savings.
Ed Siddell: Yeah. Women save 43% less than their male counterparts on average.
LeAnne Siddell: Wow.
Ed Siddell: You know, and that has a lot to do with staying home, taking care of the family, the kids, and not working, and that impacts everything. Social Security, savings, retirement, the whole shebang.
LeAnne Siddell: Yeah. So, how do we protect women? How do we protect ourselves and make sure that we are able to have that lifestyle in retirement?
Ed Siddell: Well, it starts with education. In the old adage, you don’t want to say it? Knowledge equals power, that’s a misnomer. That’s actually untrue. So, it’s knowledge times action. You actually have to take action on the knowledge for it to equal power, because the world is full of educated derelicts. People just don’t…
LeAnne Siddell: Know what they don’t know.
Ed Siddell: Or they don’t do anything with the knowledge that they have. So, you actually have to act upon it. So, when we’re looking at all these numbers, we’re talking about social security. Most people don’t understand how social security works. If their spouse passes away, they lose one Social Security, they get to keep the higher of the two. But let’s go back to the first example. Now, when we’re talking about if a lot of the women that we work with who are widowed or divorced, they’re going through these things and so they did. They stayed home 5, 10, 15 years, or never went to work. And so, they either don’t qualify for Social Security or they have very little.
LeAnne Siddell: Yeah. They didn’t go out. They didn’t work outside the home. So, the way those credits…
Ed Siddell: They had the harder job but according to Social Security, they didn’t work.
LeAnne Siddell: And those credits the way that they add up, it’s the top.
Ed Siddell: Yeah. And I call that eliminating zeros.
LeAnne Siddell: Yeah.
Ed Siddell: And so, it has a huge effect on your annual income from Social Security, which your benefit is, as well as lifetime compared to your male counterpart, your husband, your spouse, during that same time period because they continue to work. And it’s about taking Social Security looks at the highest 35 years and they average them out. So, if you have 10 years, 12, 15 years that you missed, that’s a huge negative impact.
LeAnne Siddell: That’s going to, yeah, definitely cause that average to take them down.
Ed Siddell: It is and one of the things that people just don’t realize is, and we help people find out benefits that they’re eligible for that they didn’t know. So, let’s just say that you are widowed. You know, I always ask people, “What’s the earliest that you can take Social Security?”
LeAnne Siddell: Sixty-two.
Ed Siddell: Right. And you would be right except for the fact that if you’re a widow, you get to take it at the age of 60.
LeAnne Siddell: Yeah.
Ed Siddell: And even if you get married after the age of 60, they cannot take those benefits away from you. So, it doesn’t impact those benefits. Now, let’s just say that you’re going through divorce, you’re going through that kind of transition, or you’re already divorced. We were just talking to a young lady a couple of weeks ago in this situation and her comment was, “Ed, I don’t want to claim it. I don’t want to have to ask permission. I don’t want them to know.” Well, you don’t have to. That is your benefit.
LeAnne Siddell: You just had to have been married for 10 years.
Ed Siddell: Married for 10 years. Their benefit is more than yours or you didn’t qualify and you get to take that. Now, if you get remarried, you lose that benefit unless you get divorced again or an annulment or they pass away. And then if you were married 10 years to that spouse you get to pick the higher of the two. Okay. So, that’s a big deal.
LeAnne Siddell: So, what else do we need to know as far as we’ve talked about social security. What else do we need to know?
Ed Siddell: Taxes. The single biggest expense that most people have in retirement you would say what?
LeAnne Siddell: Health care.
Ed Siddell: Everyone always says. As we continue to write the bills for our boys, right? You know, it’s taxes. I mean, as Americans, most people don’t realize we pay over 70 different taxes a year on an annual basis. And when we saved money, we saved most of our money pre-tax, whether it’s 401(k), 403(b), Thrift Savings Plan, whatever it is, 457. And so, pulling that money out, Uncle Sam wants the money, so you got to pay taxes first. So, if you need $3,000 to live on, you can’t just pull out 3,000 a month. You’ve got to pull out enough to cover federal, state, and local taxes. So, again, we always talk about wealth. It’s not what you make or save. It’s what you get to keep. So, rearranging things, looking at a Roth, right now, taxes are low. Whether you believe it or not, it’s all about the math. Historically, these are historically low tax rates. These go away December 31, 2025.
LeAnne Siddell: Or sooner, potentially.
Ed Siddell: Potentially, right? But right now, we’ll go with what we know.
LeAnne Siddell: Yes.
Ed Siddell: And so, if you believe your accounts are going to keep growing between now and January 1, 2026, you may want to look at doing some Roth conversions. Because if you made $100,000 in 2017 versus today in 2021, you’re going to be paying a lot less taxes now than you did then. So, the effective tax rate is going to be significantly higher back then in 2017 and when this tax code goes away, that’s what it reverts back to. So, taking advantage of that again most of the people that we help, they decide how and when and how much they want to pay in taxes. They’re going to use their own game plan that we come up with and not the government’s. And so, that makes a huge difference. The two areas that most people procrastinate on the most, I mean, and not just the people that we help, but in America, it’s healthcare planning and legacy which is estate planning.
LeAnne Siddell: It is. You know what the right answer is. I just think sometimes people think that they have all the time in the world to make changes or to update things. And sometimes that added time is not there or you forget about it.
Ed Siddell: You never know when the good Lord is going to call you home.
LeAnne Siddell: That’s exactly right. And that probate area for the purposes of your family can be something that is very expensive, something that you procrastinated on that’s going to end up costing a lot on the end.
Ed Siddell: Well, and not only that. They may not have access to it. We manage a lot of 401(k) plans for a lot of companies and we were taking over a plan with a client. And as we’re going through the process, one of the employees died, and the previous advisor, they weren’t looking, checking the beneficiary statements. And so, she had no beneficiary statement on file. And this was a big deal because she was the breadwinner. Her husband worked part-time but stayed home mainly and took care of the kids. And so, they needed that money to live on but now that’s going through probate. So, some very, very basic things that really didn’t cost any money can really protect your family.
LeAnne Siddell: Absolutely. So, let’s just talk about how long women live. I mean, sometimes we can live. I’m just going to tell you, I love to say I get to retire any day now but that might not happen. But if that was the case, there is the potential that I could live for another 30 years.
Ed Siddell: Yeah. My grandma passed away right before she turned 97. She retired early. So, think about that. So, let’s just say that you retire early at the age of 62 and you live to 92. I mean, that means a third of your life is in retirement so how are you going to fund that? I know what everyone’s saying, “No, that’s not going to happen.” Again, statistically, all right, if you live to age 65, you have a one in four shot of living past the age of 90 and a one in 10 shot living past the age of 95. So, you need to make sure that you have a plan, a strategy for your income, so you know where it’s coming from, and that it’s going to last.
LeAnne Siddell: And that you’re not looking at the news every day and seeing the rollercoaster of the market worrying that the money that you need to live on is going goodbye because of the volatility of the market. You need to know that that’s safe.
Ed Siddell: Yeah. And that’s a big premise. We put together the risk budget whether you have a million, 500,000. Well, first of all, let’s go back to health care real quick because if you have a million dollars, long-term care is near and dear to my heart because of how expensive. My mom is in a memory care facility and the average day is about two-and-a-half to three years and the average cost here in Ohio is about $100,000. In Florida, it’s significantly more, which is where my mom and dad are. So, that’s about 250,000 here in Ohio. So, if you have a million dollars, a quarter of that money is gone to cover that expense. So, how do you stress test that to make sure that you have enough? Or let’s just say that you have 500,000? Now, 50% is gone. So, we continue to run those what-if scenarios to make sure that that money is going to be there, and it’s going to last if you need long-term care. That’s a really big deal. And then you couple that with the roller coaster in the market, the ups and downs, because you don’t want to be in a situation where the market’s going down. You have 100% of your assets in the market. And so, now you have to continually liquidate those things at a loss just to be able to live. You know, we call it the concept of age-based investing.
When we’re putting together this risk budget, we call it safety, income, and growth, there are only three places that you can put money. You’ve got your money, your emergency money that you need for safety, obviously, your money that you’re going to need for income, which is why we talked about Social Security and you’ve got pensions and dividends and all those other things. Then you have your money that you’re going to need for growth and that’s everything that’s in the stock market and your stocks, bonds, mutual funds, ETFs, we’re going to throw in real estate and all those other things, high risk. And the question always is, “Ed, how much should we have in there?” Well, because we use the prudent investor rule, the rule of 100, and this is just a general concept. You take your age, you subtract it from 100, and that’s the maximum amount that you should have at risk in the market when you’re in that danger zone. I mean, the closer you get, and once you hit retirement, that’s a pretty good general rule to follow. So, if you’re 60, which is the average age of our client, then you only want 40% of your money at risk in the market.
Again, you want enough money and safety and income, so that no matter what’s going on in the market, you can live your lifestyle and maintain it, and it’s not going to be affected. Because the stock market works, it does, but you need one depleting asset that you can never regain for it to work, which is time. You need about eight to ten years for it to kind of come back up and grow and get back to where you were and generate some profits before you start drawing on it.
LeAnne Siddell: Well, Ed, so if people want more information, how do they get it?
Ed Siddell: Well, anybody who wants our help, we’re going to give a no-cost, no-obligation. We’ll give a written income plan, a financial plan, the retirement fitness plan, because we want to make sure that you’re going to be in the best shape possible. When you retire, you need to know kind of where you stand. We do not charge to build these plans for the people that we help. So, if you want our help, give us a call and we’ll help put that together at no cost.
LeAnne Siddell: Again, if you want Ed’s help and you want a free no-cost, no-obligation retirement fitness plan, income plan, the whole shebang, give us a call here at the office at 614-526-4118 or you can email Ed at info@EGSIFinancial.com or go to our website at www.EGSIFinancial.com. Thanks, Ed.
Ed Siddell: Thanks, LeAnne.