Retirement Planning For Women – Have You Mitigated These Major 5 Financial Risks?

Contrary to popular belief, that men make better investors, a study has shown that women investors are actually outperforming their male counterparts. The 2021 Women and Investing Study by Fidelity Investments has shown that on average, women investors achieve positive returns and surpass men by 40 basis points, or 0.4%.

However, Fidelity also found in another survey that only 59% of the women (compared with 72% of the men) actively make investment and savings decisions. Why is this so, given that women today have a good degree of financial literacy as compared to the past? I believe it is that women are more careful because they tend not to make decisions in isolation. Often, they take into consideration how a decision can affect the people around them and that causes an emotional drag in their decision-making.

Retirement Planning = Creating Income + Risk Mitigation

When it comes to retirement planning, I often advise my clients that when it comes to retirement planning, it is not merely about having an amount saved up. Beyond savings, it is about having an income and managing the many risks we face in retirement. Without preparing for and successfully navigating the risks involved, the money you have saved may be quickly drained before you know it.

While financial risks are unavoidable, they can be managed by intentionally planning and preparation for them early. I always advise my female clients that retirement planning for women has to be different from men, as we face different challenges in the form of financial risks. Some of these apply to men as well, but they tend to affect women in greater proportions.

In my practice, I’ve observed that very often, the focus in retirement planning is on income creation (with good reasons of course) but the mitigation of risks is often neglected or addressed as a “by the way”. Perhaps, this neglect stems from a lack of awareness and not many financial planners specifically highlight the type of risks women face in retirement planning.

The starting point is of course awareness if these risks are to be mitigated properly and here is my list of 5 Major Financial Risks That Women Face In Retirement.

5 Major Financial Risks Women Face in Their Retirement

1. Caregiving Risk

In a survey conducted on informal caregiving in Singapore, the demographics of the caregivers surveyed showed:

• There are more female caregivers (60%) than male caregivers (40%).
• Most of the caregivers are middle-aged between 45 to 59 years
• The majority of them are currently married (65%).
• There is a substantial group of single caregivers (i.e. not married) (26%).

The facts show that on average, women are more likely to take on the role of caregiving. In addition, they are likely to be doing this during a period of their lives when they are potentially enjoying a high income, should they be working. Caregiving can take a toll on these female caregivers financially as they can lose a whole chunk of their prime income earning years. The potential impact on their own financial plans can be significant regardless of their marital status.

I have seen clients stop working, because they need to look after their sick and aging parents. For example, a client of mine who was at the peak of her career and earning a good income had to stop work for a prolonged period to be a caregiver to look after her sick aging parents. These type of changes and challenges are not as common for men. Beyond the obvious immediate effect of a loss of work income, there are also the extra costs involved in travel, possible caregiving training, and even caregiver therapy sometimes.

Caregiving risk is when you have to be a caregiver unexpectedly and has to suffer a financial loss through a combination of loss of income and increased expenses without any planned financial provision. Personally, I prefer to look at the possibility of caregiving as a responsibility yet professionally as a financial planner, I have to see it for what it is – a potential risk to a financial plan.

A Personal Note On Caregiving: 

Having been a caregiver myself, this is a topic that is close to my heart. When I knew that I had to be a caregiver, I got involved early in the financial plans of my parents. It helps to face the facts early because unplanned caregiving is very much harder than planned caregiving. It also helps to have a sibling to share the financial burden. Therefore with planning, women who foresee the caregiving risk can set up their retirement plans with more flexibility to allow them to adapt to their caregiving needs.  

In an episode of Spotlight that was aired on Channel 5 and CNA Singapore, the various challenges faced by caregivers were featured. I gave financial advice on the program, and in so doing, I lent my voice to the challenges faced by caregivers. On hindsight, this was only possible as a part of my experience as a caregiver, as well as my healing from grieving my late father.

2. Health Risk

Women are expected to live longer than men (I’ll expand more on that later), but according to an article by The Straits Times in 2017, which quoted the Global Burden of Disease 2015, women are also forecasted to spend on average the last nine years of their lives in ill health, as compared to 7.5 years for men. In addition, women are also likely to have more years in disability compared to men, and this requires the need for financial plans in place to cater for the possibility of long-term care.

With this in mind, women need to have a medical and long term care plan that is more comprehensive than normal to cater for a longer timeline in the event of loss of health. This goes beyond having hospitalisation insurance such as Medishield Life or Integrated Private Shield plans, as there are some expenses that may not be covered.

Some examples of these expenses include:

i) Prolonged treatment with long-term follow-up: There is a restriction on the duration of reimbursement for the post-hospitalization expenses on the Integrated Private Shield plan.

ii) Test Drugs: Should the treatment prescribed be listed as a test drug, Integrated Private Shield plan will not cover the cost of these drugs.

iii) Rehabilitation expenses: This would apply after a successful surgical procedure, which can include cost of therapy sessions and transport to rehabilitation centres, such as specialized cabs for the wheelchair-bound.

Hence, it is vital to not only have hospitalisation insurance, but also other types of coverage such as critical illness insurance, as that will cover the other additional medical expenses which are not covered by the hospitalisation plans. Without comprehensive planning, the emotional stress of being ill will be exacerbated by the financial stress of having to find ways and means to pay for treatment.

Health risk is when the unexpected loss of good health causes a major need for cash which results in your retirement funds being severely or fully depleted. It is the transition from being a caregiver to be the one being cared for and if this risk is not mitigated well, it can be an expensive mistake that many will not be able to afford.

3. Inflation Risk

The risk of inflation and loss of purchasing of power is a very serious issue for those in retirement and even the pre-retirees. Inflation can increase the risk that you will run out of money in retirement by eroding away your future purchasing power. One reason why inflation is especially problematic for retirees is due to the increasing cost of medical care. The current financial climate is also a good indicator, as petrol and food prices have gone up noticeably.

To mitigate inflation risks, most women understand the need to start setting up investment plans to eventually replace their working income. However, similar to the Fidelity findings mentioned earlier, insights from Standard Chartered Bank’s online financial planning tool, which showed that only a third of women in Singapore are currently invested. From my observation, there are 2 main challenges that women generally face in investment planning:

i) The lack of time due to the many responsibilities that they are juggling.

ii) Not being able to relate to the materials used in investments which are typically presented in rows of numbers and facts that they find difficult to relate to.

Investing is one of the most common and effective way to mitigate inflation risks yet whether it’s by choice or accident, women simply are not investing regularly enough allowing inflation to continually shrink the retirement pot that they have painstakingly saved up over time.

4. Over-Giving Risk

I created the term “Over-giving Risk” to describe something that I see repeatedly in working with women clients. That is the picture of a client who is so focused on the people around them that they badly neglect their own needs. Even when it is pointed out to them that they should perhaps provide for themselves first, their “giver” nature will override the suggestion.

Money is an emotional topic and that is why people often lose control when it comes to money. For givers, they can’t control their emotional need to provide financially for the people around them – whether they can afford it or not. There is nothing wrong is paying for a nephew’s education or buying insurance for their siblings who cannot afford to do so. However, when it results in you being a financial burden in the future, then the short-term benefits may not outweigh the long term costs.

When I bring up these topics with my female clients, they will acknowledge that they should not be so generous when their own situation is not ideal. However, to them, this is still the right thing to do and they are prepared have less for themselves so that their loved ones will have more.

The risk of over-giving is often an unaware risk which makes it a difficult one to plan for or mitigate as it’s essentially a blind spot risk. It takes regular reviews with a trusted financial planner to protect you for crossing the line from giving to over-giving.

5. Longevity Risk

The challenge of retirement planning is to ensure that you will not run out of money no matter how long you live. How much you have at retirement is a known figure, how long you’ll live is the unknown factor. The longer you’ll live, the greater the probability that you will run out of money and the risk of outliving your retirement savings is known as longevity risk.

Women on average live longer than men which means that longevity risks are a bigger risk to us and mitigating the risk of longevity is difficult.

Firstly, it is big unknown as no one knows how long he or she can live. Next, it is difficult to define as longevity is a moving target and the longer you live, the longer your life expectancy will continue to increase. Finally, longevity risk is a risk multiplier that amplifies all the other risks including the 4 mentioned earlier. So, not only is the risk of longevity greater for women, all the other risks are compounded to leave the financial impact on our retirement so much greater.

Individually, these risks can pose a danger to any good retirement plan and collectively, they can devastate even the most well planned out retirement. Thus, even as we focus on creating as much retirement income as possible, we cannot expect a successful retirement without mitigating or even removing these risks.

Transform Complexity To Clarity

If you feel that there are too many things to consider when it comes to retirement planning and feel overwhelmed by the complexity of the planning, you are not alone. In fact, you are probably right as retirement planning is a complex process and even more so for women who faces the additional risks of caregiving, health, inflation, over-giving and longevity. The way to start is to take baby steps in the right direction.

To help you get started, I have designed a Retirement Clarity Package so you can adopt a “Review and Plan” approach to review if you are “retirement ready”. More importantly, this will help you to see if you have mitigated these risks in your retirement plans. This package will address two fundamental priorities: risk management through insurance planning to ensure we will not be a burden due to unexpected events, and wealth accumulation through savings and investment to ensure that we can be self-sufficient.

Women must be intentional in their own financial planning. Start by working from a budget and start retirement planning as early as possible to mitigate these 5 financial risks. We look forward to enjoying the fruits of our years of labour during our retirement, rather than being unpleasantly surprised and stressed by unexpected circumstances. By equipping ourselves with more information, we are also equipping ourselves to enjoy our retirement the way we would like to. As much as possible, a woman should work with a financial planner that she trusts and is comfortable with to help her mitigate decision-making risks too!

Article by Lee Meng
Email: meng.lee@gen.com.sg

The writer is an Executive Financial Services Consultant of GEN Financial Advisory