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Retirement Planning for Women

In the vibrant tapestry of Singapore, gender disparities in retirement preparedness paint a revealing picture. It’s a narrative where women often face unique challenges when securing their financial futures. In a world where financial stability, lifestyle aspirations, and financial independence dominate, retirement planning often takes a backseat for women. Just 17% prioritize it as their foremost financial goal, with the pressing demands of daily life often overshadowing future planning, a hurdle faced by 50% of women.

A recent survey by Great Eastern in 2022 has shed light on these disparities, highlighting lower investment income and lower satisfaction with retirement planning among women when compared to their male counterparts. There are several contributing factors behind these discrepancies, and they deserve our attention.

The Gender Pay Gap

Singaporean women, on average, earn 16.6% less than their male counterparts, a stark reality that hinders their ability to save and invest for retirement. This pay gap looms large, casting a shadow over financial security in the golden years.

Career Breaks

Women often take career breaks to shoulder caregiving responsibilities for children or aging parents. These interruptions, though noble, can significantly impact their earning potential and ability to accumulate retirement savings over time.

Shorter Working Lives

The combination of career breaks and other factors results in shorter working lives for women compared to men. This abbreviated tenure in the workforce translates into fewer years to save and invest, putting women at a distinct disadvantage when preparing for retirement.

Addressing these gender disparities is not just an ethical imperative; it’s vital for ensuring that women can enjoy financial security and peace of mind in their later years.

A Paradigm Shift: Women Excel in Investing

Contrary to traditional notions, recent research has unveiled an unexpected narrative: women, on average, outperform men in investing. According to Fidelity Investments’ 2021 Women and Investing Study, female investors achieve returns 40 basis points (equivalent to 0.4%) higher than their male counterparts.

However, there’s a catch. While women excel in the realm of investing, they tend to be less engaged in making investment and savings decisions. Only 59% of women, compared to 72% of men, actively participate in these financial decisions. Why is this the case? In a world where women have increasingly embraced financial literacy, what factors contribute to this divergence?

One plausible explanation is that women approach financial decisions cautiously, considering how their choices might impact their loved ones, thus introducing emotional elements into their decision-making process.

Retirement Planning: Beyond Savings

Retirement planning is not just about accumulating a nest egg; it’s about crafting a strategy to generate income during retirement while prudently managing the various risks that retirement can bring. These risks often take a backseat in retirement planning discussions, which tend to focus on income creation.

Although financial risks are an inevitable part of retirement, they can be mitigated through proactive planning and early preparation. It is crucial to recognize that women often face distinct financial challenges in retirement compared to men. While some of these challenges may affect men as well, they often exert a more significant impact on women. Unfortunately, many retirement planning discussions tend to prioritize income creation, often overlooking the critical aspect of risk mitigation.

Awareness is the First Step

Let’s delve into five major financial risks that women commonly encounter in retirement, with the goal of raising awareness and paving the way for effective mitigation:

1. Caregiving Risk

Studies on informal caregiving, such as one conducted in Singapore, demonstrate that women predominantly assume the role of caregivers, with 60% being female caregivers compared to 40% male caregivers. These caregivers are often in their middle-aged years, typically between 45 and 59, and a significant proportion are married. Additionally, a substantial segment comprises single caregivers.

These statistics underscore that women are more likely to take on caregiving responsibilities. Unfortunately, caregiving often occurs during a period when these individuals might be enjoying peak earning years. This can have significant financial implications, irrespective of their marital status. I’ve encountered clients who have had to suspend their careers to provide extended care to ailing and elderly parents. The financial consequences extend beyond just the loss of income, encompassing additional expenses such as travel, caregiving training, and even therapy for caregivers.

Caregiving risk occurs when individuals must unexpectedly become caregivers, incurring financial losses due to a combination of reduced income and increased caregiving-related expenses. While it’s essential to view caregiving as a responsibility, as a financial planner, I must recognize it as a potential risk to a client’s financial plan.

2. Health Risk

Women are expected to outlive men, which implies that they are likely to spend more years in retirement. However, a 2017 article in The Straits Times cited data from the Global Burden of Disease 2015, indicating that women are also forecasted to spend, on average, the last nine years of their lives in ill health, compared to 7.5 years for men. Furthermore, women are more likely to experience extended periods of disability, necessitating comprehensive financial plans to cover potential long-term care needs.

In light of these statistics, women need more comprehensive medical and long-term care plans to address the prospect of prolonged health issues in their later years. Standard hospitalization insurance, like Medishield Life or Integrated Private Shield plans, might not cover all expenses associated with long-term care. Examples include extended treatments with long-term follow-up, medications categorized as test drugs, and rehabilitation expenses.

Hence, it is imperative not only to have hospitalization insurance but also to consider additional coverage such as critical illness insurance to account for these unanticipated medical expenses. Inadequate planning for health risks can compound the emotional stress of illness with the financial stress of covering treatment costs, potentially depleting retirement savings.

Health risk manifests when unexpected health issues create a pressing need for significant cash outlays, depleting retirement funds substantially or entirely. It represents the transition from being a caregiver to being the one in need of care. Without effective mitigation, it can lead to costly consequences that many cannot afford.

3. Inflation Risk

Inflation risk, which involves the erosion of purchasing power over time due to rising prices, poses a significant concern for retirees. Medical care costs, in particular, tend to increase over time, making inflation a critical issue for retirees. Recent economic conditions have underscored this concern, with noticeable rises in petrol and food prices.

To mitigate inflation risk, many women recognize the importance of establishing investment strategies to replace their income from work. However, research, including findings from Standard Chartered Bank’s financial planning tool, suggests that only a third of women in Singapore are currently engaged in investment activities. Observationally, this hesitance to invest can be attributed to two primary challenges:

  • Limited time due to numerous responsibilities.
  • Difficulty relating to investment materials typically presented with complex numerical data.

Investing is a common and effective means to mitigate inflation risks. Yet, for various reasons, including a lack of time and difficulty understanding investment materials, many women are not investing regularly, allowing inflation to erode their hard-earned retirement savings.

4. Over-Giving Risk

Women often prioritize the financial needs of others over their own, sometimes to their detriment. Over-giving can lead to financial strain in the long run. I coined the term “Over-giving Risk” to describe a recurring pattern I’ve observed when working with female clients. This pattern involves clients who prioritize the financial needs of others over their own, often to their detriment. Even when advised to prioritize their own financial well-being, their inclination to provide for others often supersedes self-care.

Money is an emotionally charged topic, and individuals frequently struggle to maintain control over their finances due to emotional factors. Givers, in particular, find it challenging to restrain their emotional need to support those around them, regardless of their own financial capacity. While providing for the education of a nephew or purchasing insurance for financially challenged siblings may seem admirable, it can lead to future financial strain. The short-term benefits might not outweigh the long-term costs.

Addressing this risk can be challenging, as it often remains an unconscious behavior, making it difficult to plan for or mitigate. Regular consultations with a trusted financial planner are essential to avoid crossing the line from giving to over-giving.

5. Longevity Risk

Women face a higher risk of outliving their retirement savings, compounding the impact of other financial risks. This underscores the importance of effectively mitigating or eliminating these risks in retirement planning. Longevity risk is a central challenge in retirement planning. It revolves around ensuring that one’s retirement savings last for an indefinite period, regardless of how long one lives. While the amount of savings at retirement is a known figure, the duration of one’s life is uncertain. As women generally live longer than men, they face a greater risk of outliving their retirement savings.

Longevity risk poses unique challenges. Firstly, it is an unknown factor, as no one can predict their lifespan. Secondly, it is difficult to quantify, as life expectancy continues to increase with age. Finally, longevity risk amplifies other financial risks, including those previously mentioned. This means that not only do women face a higher risk of longevity, but all other risks also have a more substantial financial impact on their retirement.

Individually, these risks can jeopardize a sound retirement plan, but when combined, they have the potential to devastate even the most well-thought-out retirement strategy. Therefore, while creating retirement income is crucial, achieving a successful retirement requires effectively mitigating or eliminating these financial risks.

Tailoring Retirement Planning to Different Life Stages

Why should women plan differently at various stages of their lives? Each person goes through distinct life stages, and financial planning requirements evolve accordingly. Generally, financial planning can be divided into two phases: accumulation and decumulation. However, for women, the complexity arises from the multifaceted roles they play throughout their lives, including motherhood, caregiving, wealth accumulation, and wealth decumulation. This complexity necessitates unique planning considerations to support women as they transition between these roles. For instance, a woman may be at the pinnacle of her career, earning a substantial income, but she might need to temporarily leave her job to assume the role of a caregiver, essentially shifting from wealth accumulation to wealth decumulation. Such transitions are less common for men.

Identifying one’s current life stage is crucial for determining the appropriate financial steps to take. I will discuss three primary life stages below:

1. Preparation Stage – Launching Your Career

Women in this stage are typically in their twenties to early thirties, embarking on their careers. They may have more financial resources and decision-making freedom, leading to a desire for increased spending and lifestyle upgrades. To prevent overspending, adopting a “pay yourself first” mentality is prudent. This means prioritizing savings and investment contributions before allocating the remainder of income.

In the grand scheme of financial planning, this stage requires a “Protect and Grow” approach, which emphasizes safeguarding health and medical needs by establishing a comprehensive insurance portfolio, including hospitalization and critical illness coverage.

A common oversight during this stage is the delay in long-term retirement planning. The prospect of retirement often feels distant and less appealing than current engagements and networking opportunities. However, it’s essential to start planning early to ensure financial security in retirement.

Key financial planning priorities at this stage include:

  1. Coverage: Adequate hospitalization and critical illness coverage, as individuals in the early stages of their careers may lack substantial savings to cover medical expenses.
  2. Property: Particularly crucial for single individuals, owning property serves as a future anchor.
  3. Early Investing: Initiating investments early to future-proof retirement.

Pro-tip: While clarity about the future may be lacking in this stage, consistent savings and income-aligned investments are crucial. Greater clarity will emerge in the next stage.

2. Clarity Stage – Defining Priorities

Women in this stage enter a “golden period” for retirement planning. They enjoy increased disposable income and may be tempted by luxury expenditures. However, excessive spending can erode savings quickly, making it essential to establish a plan for wealth accumulation through savings and investments to support retirement.

Why should working women in their forties plan differently than their younger counterparts? As mentioned earlier, individuals in this stage often reach the peak of their careers and earnings. Nevertheless, they may need to pause their careers temporarily to assume caregiving responsibilities, transitioning from wealth accumulation to wealth decumulation. Various financial planning priorities may apply, including addressing major financial risks and managing caregiving responsibilities.

For example, consider Ms. Chua, an only child anticipating inheriting her parents’ property. While she enjoys career growth opportunities in web design, she is concerned about potential burnout due to the constant demand for creativity and meeting deadlines. In her early forties, Ms. Chua is contemplating her long-term financial plans and seeking direction beyond basic insurance and savings. Given her role as an only child, she must consider the possibility of reducing her workload earlier to fulfill caregiving duties to her parents. Consequently, she should establish a financial plan that accommodates increased disposable income, providing both security and freedom for her future.

Women in this stage often overlook their insurance needs, as work-related demands can impact their health and insurance eligibility. Hence, a thorough examination of retirement requirements is crucial for preparedness.

To define your priorities during this stage, consider three decisions:

  1. Home: Where do you want to live?
  2. Assets: What do you want to own?
  3. Work: When do you want to stop?

With these priorities in mind, you can chart a more informed path forward.

3. Retirement Stage – Living the Plan with Adjustments (Converting Assets to Income and Legacy Planning)

Women in this stage can be likened to an airplane preparing for landing. They should have already established their goals and are adopting a “Prepare and Generate” approach, focusing on retirement readiness. This includes rebalancing their investment and insurance portfolios to create income for retirement, eventually replacing their working income. Additionally, they must consider utilizing CPF for retirement and planning for long-term care, such as setting up a Lasting Power of Attorney. This stage often involves caregiving responsibilities, and women must be cautious not to overextend themselves physically and financially.

The key financial planning priorities during this stage, in order of importance, are as follows:

  1. Protection: Women in their fifties should assess insurance coverage for asset protection, particularly regarding health-related expenses. Insurance should be sufficient to cover medical and long-term care costs without necessitating asset liquidation.
  2. Income: Having managed finances prudently in the preparation and clarity stages, individuals in this stage should focus on converting assets into retirement income, ensuring it can replace their working income.
  3. Legacy: This stage provides an opportunity to consider the legacy you wish to leave if you have the resources to make it happen.

Retirement planning can indeed seem overwhelming, given the myriad factors to consider, particularly for women who face additional risks related to caregiving, health, inflation, over-giving, and longevity. Starting with small steps toward the right direction is key. Financial planning for women should be tailored to their specific life stages, considering roles as wealth accumulators, caregivers, and wealth decumulators. Identifying the current stage is essential for making informed financial decisions that align with changing priorities and responsibilities.

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