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Why Women Risk Retirement Disaster, and How They Can Avoid It

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Retired women and pre-retired women alike fail to plan long-term for their retirement, according to a study by the Society of Actuaries (SOA). Offering an actuarial perspective on ways to address these concerns, the report, titled “The Impact of Retirement Risk on Women,” uses findings from the “2009 Risks and Process of Retirement Survey Report” to identify specific concerns for women and retirement.

Half of women at age 65 will live another 20 years or more, says the SOA; of its survey respondents, 92% of those who are retired, and 89% of those who are in “pre-retirement,” fail to plan adequately for that 20-year span. The report offers an actuarial perspective on techniques to address this failure to plan.

Olivia S. Mitchell, professor of insurance and risk management at The Wharton School, University of Pennsylvania, says that while she cannot comment on the accuracy of the percentages mentioned above, people in general have very low financial literacy. They also, according to a working paper on Social Security coauthored by Mitchell and three others, have a low understanding of their own longevity. Most are more optimistic about how long they will live than actuarial tables suggest.

That said, it was perhaps all the more surprising that women, who live longer than men, should fail so spectacularly at providing for what could be a substantial period of time after retirement. But most Americans—not just women, according to Mitchell—don’t plan for retirement. Many don’t even try to plan.

The risks to women in retirement from an actuarial standpoint are considerably different from those to men, according to the SOA.

Five key issues that women face and fail to adequately plan for include:

  • Outliving their assets;
  • Widowhood;
  • Potential for chronic disability, either mental or physical;
  • Cost of health care and treatment; and
  • Economic factors.

Because of their longer lifespans, the SOA says, the effects of some of these are magnified for women. The cost, for instance, of lifetime long-term care averages $29,000 for men, but $82,000

for women, calculated in 2000 dollars. Also, because women earn less and are less likely to have access to employer-provided benefits, costs can be exacerbated.

Anna Rappaport, FSA, MAAA and co-author of the report, said in a statement, “Many women approaching retirement are not focused on the long term, and the economic crisis of the past few years is only going to add further challenges in retirement security for women in the Baby Boom generation.” She added that the study is meant to be a “call to action” for women to better prepare themselves.

It should certainly succeed in that purpose, containing, as it does, a number of disturbing statistics in addition to the above-mentioned relative cost of long-term care:

  • Four out of ten women over the age of 65 and living alone rely 100% on Social Security for their income
  • Because of their ages relative to their husbands, it is not uncommon for women to experience periods of widowhood in excess of 15 years
  • On widowhood: 85% of women over age 85 are widows, compared to 45% of men.

Cindy Hounsell, president of the Women’s Institute for a Secure Retirement (WISER), which co-sponsored the report with the SOA, said in a statement, “This report underscores the need for women to understand the full-blown drama of retirement.” She added that for most women there is “little room for error, and being unprepared for nearly a third of their lives will have consequences.”

Read more about Olivia Mitchell in Wealth Manager's Top 50 Women in Wealth for 2010.


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