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The Impact of Retirement Risks on Women Study was sponsored by WISER and the Society of Actuaries’ (SOA) Post Retirement Needs and Risks Committee (see description of both organizations at the end of this article). InFRE has been an active member of this committee since its inception, and partners regularly with the SOA on studies that will help retirement counselors better serve their clients.  The following is an excerpt from the study. – the Editor

Introduction and Background
Living much longer than their parents’ generation, today’s seniors are spending more time in retirement than in the years planning for it. Not too long ago, retirement planning as a structured process consisted primarily of actions taken and decisions made in the years leading up to the event itself. Starting in the mid-1990s, the Society of Actuaries (SOA) recognized the need to focus on the entire spectrum of risks that seniors have to contend with after they retire. The Retirement Needs Framework Project was instituted to address these risks. The outgrowth of this project has been a series of surveys conducted biennially since 2001on the SOA’s behalf by Mathew Greenwald & Associates, Inc., and the Employee Benefit Research Institute (EBRI).

This 2010 report highlights the findings of the 2009 survey and focuses on issues in the survey specifically as they relate to retirement concerns unique to women. An overview and description of the 2009 Survey can be found on page 19 of the report. The report also updates the 2005 special report on women’s retirement issues, and summarizes the results of the 2007 survey with respect to changes during retirement, an issue of specific interest to women. In addition, the report reviews differences in key life circumstances that affect men and women differently. The report was prepared in cooperation with the Women’s Institute for a Secure Retirement (WISER). WISER’s mission is to improve the long-term financial security of women through education and other activities. Additional reports on the 2009 survey cover the risks and process of retirement and the impact of the economy on retirement risk management.

Women, on average, outlive men by three to four years and as a consequence, they represent a majority of older Americans. Therefore, an understanding of the post-retirement risks that women face today is particularly important for them. Starting in 2011, the first wave of the baby boom generation will reach 65, traditionally the age for “normal” retirement, although with the events of the first decade of the new millennium, many seniors are planning for a retirement that seems anything but normal. This report evaluates these retirement planning concerns in light of an aging American society and recent economic challenges exacerbated by the financial turmoil of 2007-2009, in particular the volatility in equity and real estate markets. It concludes with general observations about the risks and challenges facing seniors in this rapidly changing economic and financial environment, how prepared they are to confront these risks, and the importance—especially for women—to take greater individual responsibility in managing their own retirement assets.

Highlights of the Survey Findings
Overall, as in the prior surveys, the differences in responses to the 2009 survey between men and women are relatively minor. Among retirees, women are more likely than men to worry about paying for adequate health care and long-term care, depleting their savings, and having the financial wherewithal to remain in their homes. However, among pre-retirees, women are more likely than men to worry only about not being able to afford long-term care.

The economic downturn did not change the similarity of concerns between men and women. However, the differences in work history and life spans are such that the impact of self management of risks is becoming increasingly critical for women. One of the new items in the 2009 survey was planning horizon, and the survey found that planning horizon was relatively short compared to life expectancy. And while men and women have similar planning horizons, women have significantly longer life expectancies. Also, traditionally at least, women tended to marry men older than themselves, and while this age difference has declined somewhat in recent generations, it still means that a majority of women can expect to spend an extended period of time in widowhood. For most women, there exists a critical need for much better planning for this contingency.

Few married individuals seem to be informed about the financial consequences of the death of a spouse. A new question in 2007, repeated in 2009, focused on whether people thought that they would be better off, worse off, or about the same after the death of their spouse, and a second question asked how they themselves would fare after their spouse’s death. While male retirees are more likely than female retirees to report that if they were to pass away before their spouse, their spouse would be worse off financially, the differences in response by gender are still extremely small. Among pre-retirees, however, the situation reverses, and men are more likely than women to say that if they were to pass away first, their surviving spouse would be better off. It is surprising that there is not a major difference in responses by sex, even though many middle class women will be financially worse off after the death of their husbands. Only at the higher income levels are spouses likely to be left relatively unaffected financially after the first death.

The 2007 survey had a special focus on situational changes during retirement, and the special report on “The Phases of Retirement” highlights those findings. This area of inquiry is particularly important to women who live longer, are more likely to be chronically ill, and are most likely to be alone in old age. Among retirees, men are more likely than women to say they have already used equity in their home and that they plan to use this equity in the future.

Conclusions
Older Americans are faced with a range of risks during retirement. There are few differences in the way men and women perceive these risks, but significant differences in how the risks affect them. The studies cited in this report reveal many gaps in understanding of these risks and in the techniques for dealing with them. Even when there is awareness of these risks, this knowledge does not often seem to translate into changed behavior. This may be the result of personal preferences, inadequate financial literacy, or lack of resources.

This survey series indicates specific areas where education about retirement risks might help, but changes in benefit structure would provide a better solution. Specific risks that cause particular concern include the uncertain timing of death, inflation, unexpected health care costs, and long-term care costs. These results not only remind us of the critical role of Social Security, especially for women at lower income levels, but serve as a particular caution for the next generation of retirees for whom traditional benefits under this system may not be as generous, or readily available. Although in the past Social Security was considered the “third rail” of American politics, faced with ever steeper federal budget deficits, Washington may have no alternative but to reconsider features such as retirement age in light of increasing life expectancies.

Many Americans do not possess sufficient financial literacy to manage the risks they will face in retirement. Gaps in their knowledge about retirement issues are part of a much larger unfamiliarity with economic forces shaping their wellbeing. Lack of knowledge and lack of will to deal with risks create challenges for both men and women, but financial literacy challenges are more severe for women. Another recent study, however, claims that women think they know less about finances than they actually do, and as a result tend to ask more questions of their advisors and take more time to deliberate before making decisions.

One of the biggest opportunities for improving retirement security is to retire later. Yet the survey results indicate that many people do not understand the full economic impact of retiring later. More to the point, especially in the current job market, many people do not have a choice about when to retire. About four out of 10 people end up retiring earlier than planned, often due to job loss, health problems or family members needing help. When married men retire earlier than planned, it is often their widows who later in life feel the greatest impact of their spouse’s early retirement.

Many people do not focus well on the long term, and their planning horizon is thus a major concern. This study indicates a median of just five years into the future as the outlook of retirees when making important financial decisions. Pre-retirees have a slightly longer median planning horizon of 10 years, but there are no major differences in planning horizon by sex. And even among those who take their life expectancy into account, there is insufficient understanding of the financial consequences of living to extreme old age—variously considered above age 85 or 90, where women outnumber men by four to one—for those who end up outliving the other members of their generation by many years.

These challenges are all the greater because many women approaching retirement are not focused on the long term, but rather manage intuitively on a day-to-day basis. The economic crisis of the last few years did not create these risks, but it has tended to exacerbate the longer-term problems for many people. It has created particularly severe challenges for those who lost their jobs and have had to use retirement funds to help them through the short term, and for people who had heavy mortgage obligations and have lost their homes. Overall, however, it remains to be seen how the crisis has specifically affected women differently from men and to what extent it will change the general long-term outlook for retirement security.

This report should serve as a call to action by employers and employees, and by all groups advocating for employees and retirees, to accelerate the enormous task of preparing women of the Baby Boom generation for the challenges ahead.

WISER is a nonprofit organization that works to help women, educators and policymakers understand the important issues surrounding women’s retirement income. WISER creates a variety of consumer publications including fact sheets, booklets and a quarterly newsletter that explain in easy-to-understand language the complex issues surrounding Social Security, divorce, pay equity, pensions, savings and investments, banking, home-ownership, long-term care and disability insurance. WISER has also been the driving force behind a series of state and local events aimed at leveling the playing field for women on long-term financial security.

The Society of Actuaries’ (SOA) Post Retirement Needs and Risks (PRNR) Committee initiates and coordinates the development and maintenance of educational materials, continuing education programs and research related to risks and needs during the post-retirement period. This includes making data accessible on these risks, modeling these risks and methods to manage these risks. Besides its actuarial members, the PRNR committee includes a list of “interested parties,” a veritable list of “who’s who” of thought leaders from other disciplines involved in the retirement industry today. Betty Meredith, InFRE’s Director of Education and Research is a long-time member.

© 2011 Society of Actuaries, Schaumburg, Illinois. Reprinted with permission.

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