CEO, Alliance for Lifetime Income
America has gone through a major shift in retirement over the past forty years. Today, only about 17 percent of private sector workers still have access to a pension, down from 88 percent in 1975, while Social Security only covers about 40 percent of our pre-retirement income needs. It’s no wonder that an analysis of Federal Reserve data shows that 64 percent of U.S. households (about 80 million) have no source of protected monthly income outside of Social Security. With over 10,000 Americans entering retirement every day, we’re witnessing a looming retirement “income” crisis, where millions face the prospect of running out of money in retirement.
According to a 2018 study by the American Institute of CPAs, running out of money is the single greatest financial concern of clients planning for retirement. The problem is even more concerning for women. A study the Alliance for Lifetime Income conducted last year found that only 40 percent of women between the ages of 25 and 74 believe their retirement savings will last their lifetime, compared to nearly 60 percent of men.
For American women, the risk created by this crisis and its potential impact is particularly serious. No one is immune to the demands of retirement planning, but women have a unique set of challenges with unique causes.
Several studies have shown that women, on average, have a lower household income and less household assets than men because of the gender pay gap. And their assets are often spread thinner, too, since they are more likely to be single parents and more often shoulder the burden of caring for both their aging parents and children. The need to do more with less also continues in retirement since women typically live five years longer than men, making longevity risk — the risk of outliving your money in retirement — a greater concern for them.
Economists have pointed to protected lifetime income, which is guaranteed retirement income that cannot be outlived, as one of the best antidotes. There are only three places you can get protected lifetime income: Social Security, pensions, and annuities.
But today, too many women have too little protected income in retirement.
All of this only emphasizes the fact that women have a greater need to plan for a secure retirement. Doing so often starts with a conversation with a spouse or family member and then, hopefully, a financial professional. Women who have had these conversations know that a secure retirement doesn’t happen by accident.
While many of the challenges that women face in securing their retirement are beyond their control, having a plan that protects that retirement is not.