Men, Women, and Social Security

This past weekend I hosted a men vs women golf tournament. As has been the case for the past several years, the men won, but fun was had by all. However, not long after, I noticed the headline of an article heralding the 80th Anniversary of Social Security. I was struck then by the similarities between the event I’d hosted and the differences between men and women when it comes to saving for retirement. Quite a jump, I know, but allow me to elaborate.

At my tournament, I couldn’t help but notice that the women, as a whole, were much more diligent than the men. When lining up for a putt, the ladies tended to take a few extra practice strokes before the real thing. The men, myself included, tended to forego multiple repetitions and just tried our luck. This actually parallels how each gender approaches financial planning and saving. Women have been shown to exhibit more caution and less risk than men. In fact, studies show that – unlike in our friendly tournament – women tend to invest smarter than men, despite investing less overall.

Men and women may be considered equal, but they are certainly different. Women, on average, have more brain cells, prefer warmer temperatures indoors, and live longer than men. Equality between the sexes isn’t really news any longer, but it is a factor that can present a number of complications where saving for retirement is concerned. Longer lifespan means more years to account for in retirement, which means more Social Security income but also requires more savings. Men on the other hand, typically spend less, don’t live as long and so don’t need to save as much. In a way, the men “win” in this regard as they won in the tournament. Though, I’m not sure I’d call winning Sunday’s golf tournament or living shorter a “win”.

All levity aside, longer life spans do present a big problem for retirees. Longer life increases the likelihood of incurring more living expenses such as housing and health care costs, which are only rising in price. Health insurance companies around the country are pursuing increases of 20-40% for 2016 alone. Even if such expenses increase by 10%, overall living expenses could rise significantly. To make matters worse, it is likely that there will no Social Security cost of living adjustment (COLA) for 2016.

This means health care costs will consume a greater portion of Social Security checks. So then, how much more will health care gouge out of Social Security checks next year or five years in the future?

Before we look further into the potentially dismal future of Social Security however, let’s take a quick look at some of its past.

Social Security became a reality in 1935 and the first benefit checks went out two years later. In 1950, the first cost of living adjustments were made by Congress, which increased benefits by a whopping 77%.

In 1960, there were more than five workers for every person collecting Social Security. Now, there are less than three. With a huge wave of baby-boomers retiring in the next ten years, that number will likely drop even further.

Consequently, what can our political leaders do to solve this benefits problem?
There are a few solutions: raise taxes, reduce benefits, or delay the year of eligibility. None of these are ideal politically, but something must be done soon, as the life expectancy for the Social Security retirement trust fund is 2034, while the disability fund will be depleted by late 2016.

Should the retirement fund run out, there will be an automatic 21% cut in benefits, with disability being cut by 19% upon its expiration. Whether you’re currently receiving benefits or looking to start receiving a check in the future, you’ll be impacted by these legislative changes made in the near future.

The most important thing to take away from the inevitable changes in Social Security is how it will affect the “longevity” of retirement savings. Therefore, optimize Social Security benefits which will help to determine whether current savings program will meet future needs. Specifically, calculate a future income stream that includes Social Security, pension, and distributions from savings and compare it to expected retirement expenses. Finally, if necessary, modify asset allocation and mix of investment products so that the portfolio will optimize future retirement income.

Note that your advisor has the tools and training to analyze your current investment program and will help you to make the necessary modifications to your investment program.

Seems to me that more brain cells gives females a distinct advantage. Also, I’m beginning to think that since women clearly understand insecurities inherent in the male psyche, they’ve probably let us men win our meaningless annual golf match.

One more thing, if you are unhappy with your current male advisor, you may want to follow the brain cells and consider a female advisor.