LOS ANGELES, CA / ACCESSWIRE / December 8, 2021 / Women face a major dilemma and a unique set of challenges as they prepare for retirement. Historically, women outlive men of the same age and women's life expectancy goes up every year in the U.S. There are also women who choose to remain single or not remarry after a divorce. As a result, most women will end up managing their finances on their own at some point; however, women continue to trail well behind men in terms of financial literacy, often lacking the experience and the knowledge on how to plan for their retirement.
Planning can be a joint effort for couples, but women should not expect their partners to sort it all out for them. Many women are left financially devastated and overwhelmed because they were widowed or divorced late in life. Women don't just want to survive; they want to thrive. However, there are five major risk factors that can threaten women's financial security and peace of mind in retirement.
1. Health Care Risk
At least 70% of people over age 65 will need long-term care services and support at some point. Women are more likely to have longer periods of chronic disability, and typically need more care in a long-term facility or from a paid caregiver. According to Genworth's Cost of Care Survey 2020, the national median cost of a semi-private room in a nursing home is $7,756/month and can increase to $12,927/month, which varies from state to state.
This is an area where implementing specific strategies are essential for preserving retirement savings. Without this type of protection, the costs will come out of pocket, family members or draining personal savings, which can quickly deplete a 401(k), IRA, or brokerage account in just a few short years. There are a variety of insurance products that can help cover the cost of long-term care and these options can be tailored to fit every budget.
2. Stock Market Volatility Risk
When nearing retirement, it's important to change the mindset from accumulation to protection, preservation, and decumulation of assets. Avoiding or minimizing the risk of market downturns is crucial. Sustaining negative returns, especially during those critical years near retirement, can lead to an unexpected and detrimental retirement income shortfall in the later years of retirement. The first decade of the 21st century, and the most recent one that ended, reinforced some timeless market lessons for investors - returns can vary sharply from one period to another.
Reliving the decade of the early 2000s, deemed the lost decade for stock market investors, with negative market returns of up to 38% in a single year, can have a devastating impact on retirement savings by causing people to outlive their nest egg much sooner than anticipated. In fact, it took most investors over 14 years to recover from the market crash that occurred in the year 2000. Reviewing asset allocation strategies and having an updated plan that suits an individual's risk tolerance are both important aspects of planning during those important years.
3. The Tax Trap
Keeping the same lifestyle in retirement will likely require the same income, which means the same tax rate. In retirement, when children are now adults, the house is paid off and those substantial tax deductions have gone away, many people may end up in the same or even higher bracket. With the U.S. quickly approaching $30 trillion in national debt, our country will eventually have to pay for that debt. Furthermore, federal programs such as Social Security and Medicare will require more funding in order to continue paying benefits in the years ahead. The federal government has multiple tools for paying the debt down and increasing revenue, one of which is by raising taxes substantially.
What many Americans don't realize is just how high taxes can increase. In 1944 and 1945, the top marginal rate was a staggering 94%. We have been in a historically low tax environment since the mid-80s (with a current marginal rate of 37%). We can't dismiss the fact that taxes will mathematically have to increase in the years ahead.
Many financial experts and tax-preparers advise savers to contribute to tax-deferred vehicles such as a 401(k), IRA or 403(b). The tax breaks appear to be a good deal upfront - until people are ready to retire. That's when these plans suddenly become the worst possible retirement plan from a tax perspective. Unfortunately, the money saved in these plans is not all ours to keep because ordinary income taxes have to be paid on any withdrawals made from these plans.
Tax-efficiency is one of the most overlooked aspects of retirement planning. It is not only about how much has been accumulated in various retirement accounts, it is about how much is left after taxes have been paid. Innovative strategies to minimize tax liabilities in retirement are available and have become very popular in recent years.
4. Higher Inflation
Low inflation rates might not be a serious risk, but consider this: Between 1926 and 2009, the inflation rate averaged just 3%. Yet, at 3%, $50,000 today would have slightly less than $24,000 in purchasing power in just 25 years. Many retirees will have to play catch up with inflation over the years, especially with the current higher inflation rates that began during the pandemic.
There are various ways to address this risk - such as choosing investments that provide insurance against inflation or the potential for higher growth, and adding a cost-of-living adjustment rider to account for inflation. These strategies will help maintain purchasing power, especially in the later retirement years.
5. Longevity Risk
While there are many benefits to living longer, longevity increases financial risk, especially for women, who statistically live about five years longer than men. According to the Social Security Administration and a study released by nonprofit Transamerica Center for Retirement Studies, 51% of women aged 60 and older are concerned about outliving their savings. A woman turning 65 today can expect to live, on average, until age 86.5. Naturally, the money should last longer to pay the living expenses for those extra years.
For many women, running out of money is a common and real concern - especially if something unexpected like a medical issue or a loss of any form of retirement income occurs. Government programs like Social Security and Medicare will not solve these problems. Running out of money can also cause people to become a burden or dependent on family members, which can escalate and lead to poor mental health, depression, and even physical health problems. Most people and financial advisors make the mistake of focusing mainly on accumulation and having a large nest egg, which may eventually deplete itself. The key to financial retirement security is to create a guaranteed monthly income stream for life and risk management. There are specific strategies available today that can help eliminate or minimize these risks.
The Bottom Line - Prepare and Plan Ahead
Preparation is vital when it comes to retirement planning. Women need to become more informed and proactive to prevent or eliminate these risks in retirement. Financial independence is a matter of necessity for women who want to thrive.
Daniela Dubach and Ngoc Le, the Co-Founders of Retire Smart Solutions, are on a mission and purpose-driven journey to empower other women with financial education and awareness. Daniela, originally from Switzerland, moved to California on her own to pursue her dream of becoming an entrepreneur. After learning many financial lessons the hard way from lack of knowledge and guidance at that time, she was determined to overcome those challenges and to inspire other women to take control of their finances. This is why she joined the financial services industry in 2009, and since then has become even more passionate about empowering women with financial literacy and strategic planning to make smarter financial decisions.
Ngoc was born in Saigon, Vietnam and escaped the war on a fishing boat when she was five years old. She grew up in Los Angeles, California with her family. Ngoc earned her Master's in Administration and was a public school educator for 18 years. Her passion for teaching other women about financial literacy led her to join the financial services industry in 2015 after overcoming challenges of her own when she struggled to make sense of her finances after her divorce. Not only did she overcome her financial struggles as a full time single mom, she thrived. Through her own personal journey, Ngoc has great insights with deep compassion and empathy for others who also persevered through challenges of their own.
This high-achieving dynamic duo is working together to make a clear roadmap with smarter solutions for a happy, stress-free retirement. If you have been saving for retirement, but you are not sure what strategies you have in place, these experts can help you analyze your current situation. If you already have an advisor; however, you do not feel like you are getting the answers you need, have access to these strategies to be better prepared, or eliminate the retirement risks mentioned above, it is time for a change to get the results you want. Visit www.RetireSmartSolutions.com and schedule a no-obligation Strategy Session today.
Company Name: Retire Smart Solutions
Contact Person: Daniela Dubach and Ngoc Le
Address: 633 W 5th St., Floor 26, Los Angeles, CA 90071
Website Link: https://www.retiresmartsolutions.com/
SOURCE: Retire Smart Solutions
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