Women and Risk: Planning for Longevity

Life expectancy is still steadily increasing, with no signs of slowing down. Women, in particular, have seen an extending lifespan in recent years. Right now, women have an average lifespan of 81 years! As biotechnology improves, it’s very likely that people will live well into their 90’s - or even past 100 years of age. While this is an exciting thought, it does require more detailed financial planning.

Your retirement plan and investing strategy is designed to support you through the end of your life. However, because life expectancies are getting longer, the possibility of you running out of money in your years as a retiree is getting higher. The last thing you want is to run out of funds after you’ve passed an age where working is medically feasible. You want to have an investing strategy that supports you for your entire life - however gloriously long that might be. So, what can women do to better prepare for a longer future?

Get Comfortable with Risk

Women are, traditionally, risk averse when it comes to their investing habits. They want a sure thing, and to see steady growth rather than take on excessive risks in their portfolio. While this aversion to risk can benefit women in many areas of their life, when it comes to investing with longevity in mind it can be a colossal detriment.

For conservative investors, “risk” might be anything other than cash savings. However, for investors, risk can go hand in hand with a long-term investment strategy. Risk is often a key component in your investing strategy, especially when planning for longevity. Many view risk as a measurement of investment volatility, but it’s actually a much broader term. To simplify things, we can view risk as a measurement of whether or not an investment might:

  1. Lose capital or the original amount invested.
  2. Underperform relative to expectations, or a market benchmark.

There is also risk associated with being too conservative in your investments:

  1. Interest rate risk, where a rollover CD or a bond replacement will earn less interest than the original investment.
  2. Inflation risk, where a conservative investment’s returns do not keep pace with inflation and the prices you have to pay for food, gas, medical care and such.
  3. And the biggest risk of all, running out of money before the end of your life!

When you think about risk like this, it makes “risky” investments seem a little bit less intimidating. Risk needs to be viewed in a broad and flexible way because it’s a broad, flexible term used to define investments. There are many levels of risk that can be used in creating a portfolio that aligns with your needs.  Risk plays into long-term investing strategies quite well.

Embrace Long-Term Investing Strategies

When you are planning to live a long life, you need to plan for your investments to generate wealth in the long-term. This means that they need to generate more wealth on the front-end of your investing so that they can continue to grow in value, pay dividends, and compound interest over time. Saving and investing early, and compounding growth on the investments in your retirement savings account will help you to increase wealth as you age.

Essentially, compound interest works like a snowball. If you pack a small ball of snow between your hands at the top of the hill it doesn’t look like much. When you start to roll the ball down the hill, it picks up snow and grows in size. The more snow it picks up, the larger it gets, and the more snow it can continue to pick up with each roll-over. Compound interest works the same way on savings.

Investment growth works a bit differently, in that it doesn’t always grow in a straight line.  But over time, equities can increase in value and some pay dividends, which if reinvested, will continue to grow the investment holdings.

All of this is to say that embracing risk in your portfolio may be in your best interest when planning for longevity. Higher risk portfolios may not look ideal in the short term, but when your goal is long-term growth, higher risks may produce higher returns. When building your portfolio, consider an allocation that aligns with your risk tolerance, time horizon, and liquidity needs going into retirement.  The portfolio should also be reviewed and rebalanced regularly, and adjusted as needed to maintain the risk profile.

Planning for the Future

The first thing you should think about when creating a longevity-focused financial plan is what your future may look like. Nobody wants to think about losing a lifelong partner or spouse, but it’s a very real possibility. Planning for a period of time as a single woman during your retirement may be something you need to prepare for. There are a few things to consider that will make your financial transition smoother should you need to face that tragic loss.  Retirement is a time when financial planning is critical.

Be Active in Financial Planning Conversations

Studies have shown that women are less likely to discuss money openly than men are. This applies to both the workplace and their personal finances. In many ways, discussing money may be the last taboo left among modern women. Neglecting to participate in your financial plan discussions when you’re planning for longevity can hurt you in the long run. It’s important that you know your investing strategy, budget, savings, what you owe, and what you own.

Understand Social Security and Survivor Benefits

If you’re married, you aren’t only entitled to your own Social Security benefits when you retire! If you’re a surviving spouse, you may be entitled to survivor benefits, as well. Understanding when to claim Social Security, and how you can claim your survivor benefits in the event that you outlive your spouse, is a critical piece of your retirement planning puzzle. Even when both of you are still living and retired, you can coordinate your benefits to make them last as long as possible.

Talk to a Professional

Even the savviest investor can struggle with creating a retirement savings plan and investment strategy that takes the possibility of an extra-long life into account. A professional financial advisor can help. They’ll be able to assist you in defining what you want your retired life to look like, and how to balance saving with spending intentionally to fill your values. They’ll also be able to help you create a budget, manage your investments in an ongoing capacity, and create an estate plan that reflects your goals and wishes. Are you looking for help with your retirement planning?

Wood Smith Advisors, a woman-owned Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. We can be reached by clicking here.

"Finance Made Simple" blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.

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