Addressing women's longevity gap

Women face a number of unique challenges in retirement largely as a result of lower lifetime earnings and their greater longevity relative to men. Consequently, many women will face a “longevity gap” when they must be prepared to cover their expenses single-handedly, often during a phase of life when health care expenses are at their highest.

Health care concerns among older Americans have been heightened during the COVID-19 pandemic given the vulnerability of older people to the coronavirus. The latest statistics from the Centers for Medicare and Medicaid Services show over 1 million COVID-19 cases among the Medicare population and more than 284,000 hospitalizations. Nearly one-third of beneficiaries went home at the end of their hospital stay and 22% died, according to CMS. About half of the hospitalizations lasted seven days or less while 5% lasted more than 31 days.

Health care costs in retirement are a key priority for many clients. Six in 10 Medicare beneficiaries are concerned about future health care costs and 40% are worried a major health situation could lead to bankruptcy or debt, according to a new survey of 1,100 adults age 65 and older conducted by MedicareGuide.com. One-third of respondents said they would use retirement savings to treat a severe illness like COVID-19.

On average, women pay more for health care in retirement than men. The extra cost is primarily a result of women’s longer life spans, rather than increased use of medical services.

Typically, women will live two to four years longer than their husbands, given similar health status, but those estimates can vary dramatically based on medical conditions such as high blood pressure, high cholesterol, heart disease, diabetes, cancer or tobacco use.

To address these disparities, some advisers assume that clients will live to age 90, 95 or even 100. Others may add five years to a financial plan if a client’s parent lived into their 90s. While these approaches are well-meaning, no one wants to create a plan that overestimates longevity and restricts spending unnecessarily.

Instead of relying on anecdotal information, advisers can use personalized data and actuarial longevity projections to give clients a clearer understanding of their expected health care costs and put financial plans in place to cover those costs. Using a few key data points, including the state where an individual lives (which influences health care costs), their gender and whether they have one of handful of common health conditions, it is possible to forecast individual life expectancies and health care costs with much greater precision.

For example, a healthy 45-year-old man is likely to live until 87 and spend about $492,000 in health care costs throughout his retirement, according to a new white paper from HealthView Services, a leading provider of health care cost projection software used by financial advisers and financial institutions.

The man’s 43-year-old wife is likely to live until 90 and spend nearly $692,000 on her health care during retirement, including the last five years of her life, when she lives alone after being widowed. Although the woman’s projected lifetime health care costs are about $200,000 higher than her husband due to her longer life, she can fund that amount by investing just $5,000 more today, assuming an investment in a balanced portfolio of 60% stocks and 40% bonds with an average annual return of 6%, the paper said.

With additional time and flexibility, women and their spouses may have a more reliable path to retirement prosperity. For example, advisers should focus on how one spouse’s retirement income decisions, such as when to claim Social Security, will affect the other’s potential survivor benefits.

Medicare costs are also a major consideration. When one spouse dies, the income threshold that can trigger monthly high-income surcharges is reduced by 50%, potentially resulting in tens of thousands of dollars of additional health care costs for the surviving spouse. A financial adviser could address this potential challenge by recommending retirement income sources that do not count as part of Medicare’s modified adjusted gross income formula, such as Roth individual retirement accounts, health savings accounts, life insurance or nonqualified annuities.

“Following these steps, women and their financial advisers can mitigate—and potentially even eliminate—the longevity gap and the other challenges that are common among female retirees,” said Ron Mastrogiovanni, CEO of HealthView Services. “Financial advisers with the right tools and data at their fingertips have the power to help their female clients close that longevity gap.”