Outliving their money is the greatest fear of most retirees. Because of massive market losses since 2007, high and rising medical costs and more taxes & inflation as fallout from the unprecedented federal deficit spending, retiree fear is at an all-time high. But for the stronger gender, females, it is especially alarming, because they are expected to live longer and more likely to encounter financial problems late in life.
According to the U.S. Census Bureau’s latest data, females at birth are expected to live 80.4 years compared to the 75.2 years for males. This gap narrows as age increases, but even at age 65 the female is expected to live another 20.8 years, while her male counterpart is given only 17.8 more years. What’s more, women are much more likely to be living alone in old age than are men. Census data show that at age 75 women are 2.5 times more likely to live alone than men. About three-fourths of the women age 80-84 live alone, whereas only one-fourth of the men of the same ages live alone.
The Census data show that over one-half of married men are two or more years older than their wife, whereas only one-tenth of wives are older than their husbands. These marriage statistics, combined with longer life expectancy, cause women to have greater fear about outliving their money in retirement. In addition to being generally younger and having longer life expectancy, other reasons fuel longevity fear among women:
- they are more likely to lose Social Security benefits due to a spousal death;
- end-stage medical expenses can decimate retirement savings;
- medical costs and/or convalescent care expenses rise dramatically with age. How are women protecting themselves financially from the longevity risk they face?
In recent years the insurance industry has begun offering guaranteed lifetime income riders on fixed and index-linked annuities. Unlike variable annuities, fixed/index-linked annuities are free of market risks if held for the stated term. Retirement money can be placed in a fixed/index-linked annuity at any age and then at retirement turned into a lifetime income that cannot be outlived, even if the underlying retirement account is zero. The beauty of this retirement option is that at any time the annuity-holder can change their mind and withdraw some or all of the remaining money in their account. The issuing insurance company makes available a variety of options (inflation protection, joint spousal coverage, guaranteed earning until income is started, etc.) which permits the coverage to be tailored to fit most circumstances. When combined with Social Security benefits, this innovative development permits retirees of both genders, but especially the female, to have peace of mind in retirement knowing that outliving their money is no longer possible. If interested in securing this safe money option with some or all of your retirement money, you should discuss annuities and guaranteed lifetime income benefit riders with your financial advisor. Parenthetically, annuities are the only retirement option that offers you the lifetime security of a guaranteed income.
Shelby J. Smith, Ph.D.
May 2009
TheRetirementPros.com
Related Resources: Erasing Your Biggest Retirement Worry (10 min Video Webinar), Tax-Free Retirement Income & More (12 min Video Webinar) Where You Should Put Your Retirement Money (10 min Video)
Thank you for this commentary. No one should have to live in fear… What’s worse than having worry constantly hanging over your head? Guaranteed lifetime income and a well-research annuity is definitely a good option for most retirees. In fact, if we could get past the politics of the matter, it would make a lot of sense to structure Social Security this way.
That is, have people spend a lifetime investing into a portfolio of private annuities, diversified by institution and investment philosophy. If we did this, people could retire with actual worry-free wealth. Instead, all but the wealthiest individuals have to deal with that nagging fear that they may not have enough…
Thanks for your comments. If Social Security were re-directed to private investments and annuities, the Federal Government would not have the Social Security Trust Fund as a piggy bank. By the way, if you look at the assets in the SS Trust Fund you’ll find IOUs from the U.S. Treasury
What’s more, the interest the U.S. Treasury pays on the IOUs they put in the SS Trust Fund are more IOUs. This “Ponzi Scheme” has totally fooled most Americans. It would be a lot more efficient to just do away with the “straw man” we call SS and have the U.S. Treasury take the payroll deductions directly and pay the SS benefits. The “game” being played is like you setting up a trust fund to send your child to school and instead of putting money in the trust you put your IOUs. But, this is just one “Ponzi” foisted on the taxpayers.
If a lifetime income annuity is selected, it is also important to consider purchasing one with inflation protection. The initial payments will be smaller, but they will grow over time to insure you have more purchasing power later in life.
Inflation is a very destructive force for most retirees and protecting purchasing power should be a key objective of retirees living on fixed incomes. By all means, if an immediate annuity that guarantees a lifetime income is appropriate, getting an inflation-protection rider makes a great deal of sense. The problem with lifetime immediate annuities is that the decision is invariably irreversible.
I personally think a better option is a traditional or index-linked fixed annuity that offers a guaranteed lifetime income benefit rider — this provides all the protection, even inflation protection if you choose the coverage, but retains the flexibility to change your mind if subsequent circumstances warrant. Thanks for your comment.
My fiance is considering retirement. If he retires before we marry, will I be entitled to retirement benefits?
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