Women are likely to have earned less in their working years, but they end up as ultimate winners: They live longer than male spouses and inherit it all.
"It's not a gender issue. It's a math issue," says Manisha Thakor, the Santa Fe, New Mexico-based director of wealth strategies for women for the BAM Alliance and Buckingham, an alliance of financial advisors and money managers.
These harsh facts aren't lost on baby boomer and Generation X women: The Insured Retirement Institute reported last April that 29 percent of female baby boomers expect to delay retirement until age 70. As well, 30 percent of female baby boomers and 13 percent of Generation X women are not confident they have enough wealth to retire, the IRI found. It surveyed 403 Generation X women and 414 female baby boomers during December 2014 and January 2014, respectively.
These sweeping generalities don't mean much, unless you translate actuarial advantage to personal strategy. Here are five ways to discuss your likely longevity with your spouse and financial advisor, with an eye toward pacing your investments, drawdown and lifestyle to support a long, stable and healthy life.
1. Realistically assess your own likely longevity. "Women live longer than men. That's the actuarial fact. People with higher incomes and education live about five years longer even than the actuarial tables," says Chris Browning, assistant professor in the department of personal financial planning at Texas Tech University in Lubbock.
Run the numbers several ways to figure when and how you should tap into your Social Security benefits, using assumptions based on your situation as a couple and separately, including only yourself in the equation.
2. Adjust your portfolio. You should change it to reflect the likelihood that you will work a bit longer and retire a bit later than a male spouse, Thakor says. "If you're in a relationship, the portion of assets that are intended to support the woman should be slightly more aggressively invested, because actuarially, we live seven to 10 years longer," Thakor says. "At any stage, for any women, the reality is that you'll live longer, earn less and probably spend fewer years in the workforce, due to child care and eldercare duties."
All of those factors, she explains, tamp down women's lifetime earnings. Because women tend to earn less, especially in midlife, when men are accelerating career responsibilities and compensation accordingly, women also tend to reap less in terms of long-term investing. Offset this disadvantage by putting a slightly higher proportion of your portfolio in growth-oriented equities, Thakor recommends. "That's a prudent way to address this from the beginning," she says.
3. Have an honest discussion about financial timelines. "It's important to have a conversation acknowledging the actuarial tables -- to say, what happens if Mort goes first and you live for seven more years?" says Christine Gaze, founder of the Purpose Consulting Group, based in New York. She helps financial advisors work better with clients, including women. "The overall portfolio should be structured so that it reaches the end of her life, which should be longer. The asset allocation should already be set in place, so nothing needs to shift after he passes away."
Be sure you understand exactly what your advisor's responsibility is to you, because that shapes how he or she will assess the amount of risk you are willing to take to drive growth, Thakor says.
Often, women start with a firm affiliated with a name-brand firm and receive advice under the "suitability standard," Thakor says. "The advisor asks the woman what her risk tolerance is and she says, 'I don't want to lose money,' so they put her in a low-risk fund that has high fees," Thakor says.
Since it's likely you will need more money to cover a longer life, be sure you thoroughly understand what risk is, how it drives growth and how fees can weigh down your portfolio, Thakor says. If your have defaulted to the preference of your male spouse, break out your own risk awareness and understanding on your own terms, and see how that changes the direction of the portfolio, she adds.
4. Consider annuities. Many women hope to leave money to their children or grandchildren, which is partly why there's such resistance to annuities, Browning says, which trade a lump sum for a guaranteed lifetime of income, Browning says.
But it helps, he explains, to think of it in reverse: Consider annuities as a way to protect the amount you actually can afford to leave your heirs. If you lock in enough income to cover reasonable living expenses for your whole life, the annuity then buffers the impact on a separate pot you set aside in growth funds for either heirs or emergencies.
5. Make sure key assets are in your own name. That recommendation comes from Virginia Reynolds Parker, CEO and chief investment officer of Stamford, Connecticut-based Parker Global, an investment firm. That can take a while to engineer, so start by having your own 401(k) geared toward your own life expectancy and target retirement dates.
Also cast a gimlet eye on your house, examining the empty nest in terms of how you may redirect the value locked in the living room to a growth asset, Parker says. Shuck sentimentality in favor of growth. "The sooner you move, the better, not just logistically, but also to save the money that goes into upkeep and taxes," Parker says.
If this sounds hardhearted, think of it this way, she adds: Is it better to live free and clear in a smaller, easy-to-carry home than to see equity in a big house seep away through a reverse mortgage?
"Looking at liquidity is a different way of thinking about security," Parker says. "It's time to redesign the empty nest."