Personal Finance

Andrew Menachem: Longevity a key investment challenge facing women

A little over two decades ago, my father died, leaving my mother with his estate, but without the knowledge or skills to manage her investment money. With my interest in finance, I moved into the role of her advisor at age 22. Together, we learned from our mistakes and successes, and my mother was able to stabilize her financial position and maintain a comfortable lifestyle.

That personal experience set me on the career path to becoming a financial advisor. Since then, I have counseled many wives who have outlived their husbands and face the daunting task of learning about managing their investments at a later stage in their lives.

Statistics indicate that U.S. women live an average of nearly five years longer than men, according to the Institute for Health Metrics and Evaluation. That's why their life insurance premiums are typically lower than for men of the same age.

But that greater average longevity poses a particular challenge for women in their retirement years: how to minimize the risk of outliving their money. After all, no one wants to be forced to make a major change in the later stages of life.

A longer average lifespan also raises the risk of major medical bills or expensive ongoing care. That can be an additional financial hurdle for women in retirement, and potentially draw down their accumulated savings.

Therefore, a single woman who plans to retire at age 65 ideally should have a larger nest egg than a single man. However, many women still find it difficult to set aside money for investments. There is still a gender gap in terms of pay, despite the progress toward equality.

Another factor to consider is that women typically work 12 fewer years than men over their lifetime, according to the Women's Institute for a Secure Retirement. That means women, on average, have fewer years to contribute to their 401(k) plans or other tax-deferred retirement accounts. In addition, women contribute less to Social Security over their working lives, resulting in a smaller benefit during retirement.


To address these challenges, there are several steps that women should consider in making their financial plans. First, it can be very helpful to talk with a financial advisor who can give you a better understanding of your total financial picture, including your personal goals and risk factors.

Next, take a look at the income you will need to enjoy a comfortable retirement. That might include payments from a traditional pension plan, funds generated by your investment portfolio or monthly Social Security payments.

Once you have a sense of your potential monthly income, then you can consider strategies designed to increase your cash flow or reduce your monthly expenses. For instance, if you are a professional woman earning a salary, you may want to work several years past age 65 and continue contributing to your tax deferred account. That gives you more time to build up your portfolio and allows you to delay your Social Security benefits, increasing the size of those monthly checks because you are applying later in life.

You should also talk to your financial advisor about an appropriate investment strategy for your portfolio. In the past, a traditional approach was to “play it safe” by increasing the percentage of bonds and reducing the level of equities. However, because women (and men) have longer life spans today, it’s important to consider allocating a significant percentage to assets with the potential to grow in value, such as stocks and real estate.

Owning growth assets is also important in addressing the risk of inflation, which reduces the purchasing power of your savings. Although inflation has been relatively low for the past five years, it is unlikely that trend will continue in the next few decades.

Other issues to consider in retirement planning include potential life insurance benefits, and the possibility of inheriting funds from an aging parent. While the death of a spouse, partner or parent can be a devastating emotional event — as I know from personal experience — a carefully designed estate plan can provide financial comfort in your later years.

Andrew Menachem, CIMA, is a Wealth Advisor at the Menachem Wealth Management Group at Morgan Stanley in Aventura. Views expressed are those of the author, not necessarily Morgan Stanley, and are not a solicitation to buy or sell any security. The strategies and/or investments referenced may not be suitable for all investors. Follow Menachem on Twitter @AMenachemMS