So the retirement picture was already shifting before Covid-19 caused further transformation of the way Americans think and feel about retirement, said Dychtwald.
“In 2021, we had some pretty big learnings,” she said. “Covid had a big impact on financial security. Some 50 million Americans stopped or reduced their retirement contributions, and another 38 million began withdrawing money, which as we know has all kinds of challenges connected with it.”
Women, who face a significant retirement savings gap, felt the impact more acutely than men, said Dychtwald.
Why Social Security Is Crucial
Another hot topic this year was working with women’s Social Security benefits, touched on by Aimee Johnson, a vice president at Allianz Life Insurance Company of North America.
Johnson said that advisors need to find ways to optimize Social Security to attract and retain more clients, recommending a standardized process for doing so: gathering accurate information, making the benefit calculations, analyzing the timing of benefits, considering how receiving benefits might impact other client assets, and making a full income assessment. Only after reviewing all this information with the client can the best decision about when and how to receive benefits be made.
Later, Pui Kalyanamitra and Ryan Bertrand, two Transamerica retirement specialists, also emphasized the importance of optimizing Social Security, as well as taxes, Medicare, estate planning and the proper titling of assets.
“When you look at the challenges women face when planning for retirement, earning less and living longer, you realize that Social Security is a very important income source,” Kalyanamitra said, adding that it can be even more important than other assets because it’s inflation-adjusted. “The biggest question is does it make sense to delay the benefit to enhance it. For a woman who maybe didn’t make a lot of money over her lifetime, this is an opportunity to supply something meaningful for the rest of her life.”
Because women live longer than men, on average, the presenters said it typically makes sense to delay taking Social Security benefits until age 70, which can lead to a 70% increase in the amount of the claimant’s monthly benefit.
Thus, Social Security is usually more favorable to women, as they live longer and continue to get richer, according to research presented at the conference by Sophia Duffy, associate professor of business planning at the American College of Financial Services. Because women are likely to outlive their spouses, financial advisors need to make sure that retirement planning takes that into consideration.
“Part of that is really recognizing that Social Security is not only a retirement tool, it’s also a death benefit,” Duffy said, explaining that if the husband should die, the spousal benefit becomes important. “So, deciding when to claim and which benefit to claim becomes a really important part of her overall retirement planning.”
Getting the Social Security question right is crucial for women clients, because it is an inflation-protected asset with a payout that resembles an annuity, but costs far less for the beneficiary, said Duffy. So advisors should find ways to help delay benefits to age 70 where possible to maximize the benefit.
According to Dychtwald, retirement has become a third chapter of Americans’ lives, supported by four pillars: health, family, purpose and finance. These pillars are of roughly equal importance, and clients need advisors to provide support and guidance across all of them.
“Most retirees wish they had done a better job planning for the financial aspect of retiring, but they also wish they had planned for the other pillars,” she said.