5 Crises Facing American Women
5 Crises Facing American Women
1
Decreasing rates of return on their Social Security contributions (aver-aging 1.8% per year for single women). Source: Social Security Administration
2
The accelerating demise of Defined Benefit pension plans. 150,000 pension plans, which would have provided lifetime income security, have been discontinued since 1983, leaving less than 25,000 plans today, many of which plan to close within two years. Source: Pension Benefit Guaranty Corporation, Employee Benefits Research Institute, Mercer
3
The transition of the baby boom generation into retirement. The first baby boomers reached eligibility in 2006 and will continue to enter the retirement ranks over the next 20 years, creating a huge cash drain on our Social Security system. Source: Social Security Administration
4
Longer life expectancies. 65-year-old women have added another 4 years to their life expectancy since the 1960’s. And, over the past 160 years, women in the most developed countries have added another year to their life expectancy for each 4 years that pass. Sources: U.S. Census Bureau and Dr. James Vaupel, Director of the Max Planck Institute for Demographic Research
5
The much smaller post-baby boom generations who are being asked to support boomers unfunded benefits, along with their own healthcare and retirement needs. Moreover, because of their greater life expectancy, women’s benefits will be much costlier to fund than men’s. Source: U.S. Census Bureau
SO … THESE ARE THE PROBLEMS.
WHAT ARE THE SOLUTIONS? There are 3 – only one of which provides certainty, guarantees and safety. Here they are:
1. Roll the Dice
Invest everything in the market, keep your fingers crossed and hope for the best. You must also know precisely when to sell. That is, you need to cash in on all future market gains. Otherwise, any gains are “paper” gains and can disappear in a hurry. Furthermore, the “distribution” phase (retirement) is very different from the “accumulation” phase (gainful employment). This is due to “Reverse Dollar Cost Averaging” and the Order of Returns Risk linked to seeing your portfolio lose value while you are taking money from it. In short, not only are you diminishing your nest egg by taking money from it, it is also shrinking due to market losses. Indeed, every time you take money out, it is a larger percentage of the remaining portfolio.
2. Invest in a conservative mix of fixed interest investments such as CD’s or government bonds. However, we are at a 45-year low in interest rates. And, since these instruments do not provide “mortality credits” – paying out larger checks as you age – it will take an ever-increasing portion of your funds to generate the same amount of income. Thus, you will INCREASE the odds that you will run out of money if you keep diminishing your principal base. And, higher yielding corporate bonds also do not provide “mortality credits” and, in fact, lose value as interest rates rise. In other words, just like stocks, bonds expose your portfolio to considerable risk.
3. Use safe Indexed Annuities with Guaranteed Lifetime Income Riders.
Locking up a guaranteed income for life provides you with the security and certainty you want and deserve. Plus, if the markets do well in the future, you will participate in those gains with real money added to your account. This, in turn, could protect you from inflation and potentially provide even more income than your underlying annuity contract guarantees. Accordingly, you may have given up some upside market potential – assuming you know exactly when to cash in. But, you will still be given a share of all future market gains with real cash. And, perhaps best of all, you will protect yourself from market losses right at the time people would be the most vulnerable to downside risk.