Despite being more educated and financially empowered than in past generations, many women still feel insecure when it comes to retirement strategies and their financial future.
While more and more women are responsible for handling their family finances, it can be overwhelming for anyone to weigh all of the options and make the decisions that are required when planning for retirement income and for leaving a legacy.
It’s not just women, of course, that feel insecure about their strategy for retirement. But women do face some special challenges when they are preparing for their financial futures. First, women are living longer than ever before — thanks in part to preventive healthcare becoming a larger focus for women of all ages1.
Women, like many pre-retirees, tend to have retirement strategies that don’t reflect the increase in life expectancy2. Men have that same problem, but it can be more problematic for women because with an even longer life expectancy, women face an even greater scale of retirement income shortfall.
According to the Centers for Disease Control and Prevention, women tend to live almost five years longer than men1. That’s a lot of retirement income that will be needed and if, like some women, they have not taken an active role in their retirement preparation, they may be forced to live with the financial decisions made by their husband even after he’s gone.
Many financial services professionals have female clients who have reported facing a retirement strategy dilemma at one point in their life. It’s very common, and some of the same drawbacks plague women as they prepare for, and then live in retirement.
Let’s look at four of the most common drawbacks, and consider how a financial services professional can help you navigate them.
1. Not understanding the source of your advice.
It is crucial to know where you are getting your financial advice and understand the motives behind the person giving the advice. Trust and respect are important factors in deciding what professional they choose. By educating yourself on the options available, you can ensure you find a true financial professional partner in life.
2. Failing to allocate your assets appropriately.
One of the important factors in retirement strategy is allocating assets appropriate to risk tolerance, income needs and legacy desires — yet many people overlook changes that should be made as you near retirement age.
Strategic allocation ensures diversification based on your unique risk tolerance. Diversification is the key to risk management and is a critical component to your overall financial strategy. The simple way of putting this is: Don’t put all your eggs in one basket. It is important to note that diversification cannot guarantee a profit or protect against a loss.
3. Failing to take advantage of stretch options, which provide a greater legacy to your loved ones.
With the Tax Reform Act of 1986, Congress passed a law that allows multi-generational distributions for Individual Retirement Account (IRA) assets3.
Non-spousal beneficiaries must generally take distributions from their inherited IRAs, whether transferred or not, within five years after the death of the IRA owner. But an exception to this rule applies if the beneficiary elects to take distributions over his or her lifetime, often referred to as “stretching” the IRA. You can stretch IRA distributions throughout yours, your children’s and your grandchildren’s lifetimes.
- Failing to prepare for legacy planning.
When planning your legacy, some good questions to ask yourself include:
- Are your beneficiary forms up to date?
- Do you know where your important documents are located?
- Do you have primary and contingent beneficiaries?
- Do you know what benefits are available to you from the Social Security Administration?
- Have you initiated important estate planning documents?
- Does it allow the multi-generational payout?
If there is one rule more important than any other when it comes to legacy planning, it is this: Your beneficiary designation forms control how your assets are distributed, so you need to keep those forms up to date. This is true for retirement plans, annuities, life insurance, and other non-probate assets. You need to review the beneficiary designations at least every couple of years or when there is a major life event.
Everyone can benefit from avoiding the drawbacks that can sidetrack you on the path to retirement. But for women, whose life expectancies generally mean they’ll be in retirement loner than men, it’s even more important.
Contact your financial services professional to discuss how you can prepare for retirement and its many twists in turns.