Picture a TV commercial or glossy magazine ad about retirement. More likely than not, you’re imagining a smiling older couple. Maybe they’re sitting on a dock with their feet dangling in the water, or holding hands over a morning coffee. They’re sporting matching grey hair and a few attractively-placed laugh lines.
No matter what your visual, most people think of retirement as a team sport. By the time you retire, you hope to have spent years – if not decades – sharing all of life’s milestones with your teammate. So why should your retirement be any different?
As it turns out, recent research into the lives of women versus men lays out a convincing argument for why retirement planning shouldn’t be viewed with a gender-neutral lens.
It’s no secret that, on average, women tend to live 5% longer than men. This gap doesn’t seem to change much across cultures, lifestyles, or even other species! Unfortunately, these extra years are not always spent in healthful post-retirement bliss. Women are more likely to develop a number of debilitating conditions including arthritis, dementia, and fall-related injuries that have implications for their ability to earn or be active in later years.
With this in mind, you might expect to find women factoring in longer, more expensive lifespans and higher chances of lifestyle-impeding medical needs when planning for retirement. However, research done by Harvard Medical School tells a different story.
It’s well documented that couples tend to retire around the same time, but because women are more likely to marry older men than vice versa, on average they’re retiring at younger ages than their husbands. Couple that with shorter or interrupted careers punctuated by childcare and/or eldercare, and you begin to see why traditional, gender-blind retirement planning leaves women at a disadvantage.
So, how can women approach their retirement planning in a way that corrects for this imbalance?
1. Make a plan and stress-test it
Gender-blind retirement plans often make the assumption that both spouses will pass at roughly the same time. But retirement plans should be thoroughly stress-tested for the possibility that one spouse will significantly pre-decease the other, especially where partners have a wider age gap.
For instance, if your spouse were to pass in their 70s, would your plan be well-equipped to meet another 20-30 years of retirement expenses in their absence?
Think about what factors would change. Workplace pensions may become reduced or vanish entirely on the death of the pensioner. Government pensions such as CPP and OAS will also be impacted, with the CPP survivor amount often being less than one might assume, and the deceased’s OAS disappearing completely.
Tax is another factor to consider. Since all of the household income will be reported on one tax return instead of two, this may increase the surviving spouse’s average tax rate and could potentially even impact their OAS if they’re pushed beyond the clawback thresholds.
2. Understand your pension options
Workplace pension decisions often come with an election, or choice, as to how much income protection will be carried over to a surviving spouse. Sometimes it’s hard to not be seduced by the promise of a more robust monthly pension, even if it comes with a significant income reduction or is eliminated entirely when the first spouse passes. However, a 100% survivor pension should be seriously considered as it provides income security to the survivor – who is statistically more likely to be a widow than a widower.
Government pensions also come with choices. Given the fact that women tend to live longer than their male counterparts, it could be argued that there’s a larger incentive for women to delay the start date for their CPP and OAS. Both CPP and OAS offer significantly enhanced lifetime inflation adjusted payments to those who postpone their start dates.
3. Consider your decumulation strategies
Remember that your wealth is not just one lump sum. Instead, think of your portfolio as a series of staggered buckets to support you throughout subsequent stages of life. There could be physical assets like real estate, non-registered investments, and tax-sheltered vehicles including permanent insurance policies that all come together to form your financial picture.
As you structure your portfolio for retirement, talk to your advisor about when you plan to dip into each of these buckets. Registered retirement accounts, for example, can be strategically drawn down over time while there are two tax payers to split the income. This reduces the likelihood that a single surviving spouse will have to bring all the income into their sole tax return, exposing them to higher marginal tax rates.
4. Protect yourself from shortfalls
If your plan shows that you have shortfalls, then give thought as to what you are willing to change to protect yourself. Could you spend less? If your spouse is much older, do you need to have an honest conversation about your continuing to work even if they retire earlier? If the risk in the plan occurs only if one spouse passes away earlier than the other, then you could also look to mitigate that risk through the use of a permanent insurance product.
5. Know your advisor
If your spouse is the primary contact for your financial advisor, involve yourself in the advisory relationship now. Look beyond the numbers and their expertise. Does this person make you feel heard? Do they take your opinions and concerns seriously? Do you get along, and can you imagine working with them for upward of another decade on your own in the event of your spouse’s passing? The road to retirement planning will be far less bumpy if you choose the right professionals now and avoid having to hunt for a new advisor at the final hour.
Thankfully, more wealth professionals now appreciate the importance of gender-informed retirement planning. Just make sure that whomever you choose to work with understands the risks of building a plan that’s one-size-fits-all – not made to measure.
This article was originally published by TE Wealth on March 17, 2021 and was written by: Aaron Hector, Vice President & Financial Consultant, Doherty & Bryant Financial Strategists and Anna Premyslova, Investment Advisor, CWB McLean & Partners Wealth Management Ltd.