Women & Retirement: What You Need to Know


LatestIssue_img_46Women & Retirement: What You Need to Know

There are several critical issues unique to women that may complicate their retirement planning efforts. According to the U.S. Department of Commerce, women continue to earn less than men. They also live longer than men and often take time out of their careers to have children or care for an aging parent. The potential consequence? Women’s ability to secure a comfortable retirement may be compromised.

Be Proactive About the Basics

Despite these challenges, many women retire with ample financial resources to enjoy their later years. They do this by crafting a retirement plan that:

• Maximizes tax-deferred investment opportunities. In 2015, deferral limits for employer-sponsored retirement plans are $18,000, plus $6,000 in “catch-up” contributions for those aged 50 or older. For IRAs, annual funding limits are $5,500 or $6,500 if you are 50 or over.*

• Considers additional investments in taxable securities such as individual stocks and bonds, mutual funds, ETFs and alternative assets.

• Explores the features of other retirement resources including Social Security, Medicare, and long-term care insurance.

• Makes the connection between life expectancy and income needs. Even if you already have a solid asset base earmarked for retirement, it is important to continue saving because women generally outlive men by an average of five years.1

Health Care Costs: The Wild Card

The issue of health care costs is now a centerpiece of any retirement planning discussion. Part of the problem with “putting a price tag” on retiree health care expenses is that every situation will vary depending on an individual’s health, the type of health care coverage they carry and when they hope to retire.

For women, the ability to plan effectively may be undermined by a tendency to underestimate future costs. For instance, one study found that, when asked what they thought they would pay out of pocket for health care expenses in retirement, women’s estimates tended to be 50% lower than men’s.2 Further, medical experts predict that women, on average, will actually spend 50% more for health care in retirement than the typical man.2

Take a Holistic Approach to Planning

Women can begin to bridge the knowledge gap by developing a holistic plan for meeting income needs in retirement. This plan should include:

• An estimate of typical household expenses, including health care. When estimating health care costs, consider what you think you would pay in annual premiums if you were applying for Medicare today. Then factor in \ the cost of copayments, coinsurance and deductibles as well as prescription drugs.

• An allowance for both general inflation which has averaged 2% to 3% for the past several decades–and health care inflation, which remains double to triple that of the rest of the economy.3,4

• An emergency fund. Financial experts recommend storing about six months’ worth of net income in a cash account to cover life’s unexpected events.

• A health savings account (HSA). HSAs are tax-advantaged medical savings accounts that – when used in conjunction with certain health insurance plans – help to defray the cost of future medical expenses.

• A plan to address long-term care costs. With the median cost of a private room in a nursing home now topping $87,000 a year, long-term care insurance should become part of most individuals’ planning discussions.5

• The guidance of a financial professional. An experienced Financial Advisor can help you put a plan in place for achieving your retirement planning goals.

Sources: 1 Center for Disease Control, National Center for Health Statistics, 2012 (based on final 2010 data).

2 Forbes, “Women: Get Real About Retirement Health Costs,” June 26, 2013.

3 U.S. Bureau of Labor Statistics, Consumer Price Index.

4 MarketWatch, Health-care inflation heating back up,” June 24, 2014.

5 Genworth 2014 Cost of Care Survey, March 25, 2014.

David Chisholm

David Chisholm

If you’d like to learn more, please contact David Chisholm.

Article by Wealth Management Systems Inc. and provided courtesy of Morgan Stanley Financial Advisor.

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley. The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy, or product that may be mentioned.

*Contributions can be made to your traditional IRA for each year that you receive compensation and have not reached age 70?. An individual of any age, who has earned income (and does not exceed the Modified Adjusted Gross Income limits for Roth IRA purposes), may fund a Roth IRA.

Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise provided in a written agreement with Morgan Stanley. Individuals are encouraged to consult their tax and legal advisors regarding any potential tax and related consequences of any investments made under an IRA.

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