Women face a lot of unique hurdles when it comes to planning for their retirement, and understanding and managing them accordingly can make all the difference between a comfortable retirement and barely scraping by.
In this episode of Motley Fool Answers, hosts Alison Southwick and Robert Brokamp go over the six biggest headwinds that women face with retirement planning -- living longer, the wage gap, earlier retirement, and more -- and what men and women can do to smooth that bumpy road.
Also, Market Foolery hosts Chris Hill and Jason Moser stop by to talk about the hyper-variety trend we're seeing in the Oreo snack line, and taste-test some of their newest and weirdest flavors on air.
A full transcript follows the video.
This video was recorded on May 23, 2017.
Alison Southwick: This is Motley Fool Answers. I'm Alison Southwick and I'm joined, as always, by Robert Brokamp, personal finance expert here at The Motley Fool.
Robert Brokamp: Hello, everyone out there in podcast land!
Southwick: In today's episode, we're going to discuss some of the headwinds facing women on the road to retirement and what women, and men, can do to help. We'll also answer your question about where to put your cash in retirement and see if Chris Hill and Jason Moser really know their stuff when it comes to Oreos. Double Stuf.
Brokamp: I got that. That was good.
Southwick: It's time for Answers, Answers and today's question comes from L.A. I think they just had their initials in the email. L.A. writes: "I am 62, so my retirement horizon is within the next 10 years. In a recent podcast, Bro said that the closer you get to retirement, you should be pulling part of your money out of the stock market. What are some options for where to place the money?"
Brokamp: Well, L.A. that's really a tough question these days, because the classic alternatives to stocks are cash and bonds, and despite the fact that the Federal Reserve tried to boost rates a little bit earlier this year, the rates are near historical lows.
Still, that's where I'd start. I would create a mix of regular, old cash; high-yielding CDs -- which you can find on sites like Bankrate and NerdWallet; as well as some low-cost bond funds. Some bond funds to consider would be Dodge & Cox Income, TCW Total Return, DoubleLine Total Return, as well as Vanguard's short- and intermediate-term bond index funds and their ETF siblings.
Now how much should you keep out of the stock market? In my Rule Your Retirement service, in our model portfolio for people within a decade of retirement, we have the allocation as 75% stocks, 25% bonds. And for those who are in or near retirement, we also talk a lot about what we call creating an income cushion, which is basically five years' worth of expenses you need to cover from your portfolio out of the stock market -- again, in cash, CDs, and short-term bonds. And if you're a relatively aggressive investor, maybe that's all you need out of the stock market and you can put all the rest in stocks.
A lot of this has to do with what your other resources are, though, so if you have one of those classically defined benefit pensions, you can actually have more in the stock market. If you're relying completely on your portfolio, you should probably play it a little safer.
Now I know there are lots of people who do want to play it a little safer, but they can't stand the idea of investing in cash or bonds because the rates are so low, so I think it's actually a great idea you use some of your safe money to pay off any debt you have, including the mortgage. If you pay off some of your mortgage, you are increasing your net worth because you're lowering your liabilities. You're creating more home equity, which you can tap later on in retirement, maybe through a reverse mortgage, and you're also lowering your expenses, which means you don't have to take as much out of your portfolio when you retire.
And then finally, for those who are actually in retirement, I think it's worth considering a classic, plain-vanilla annuity. You hand over a lump sum of money and you get a check in the mail for the rest of your life. Studies have shown that for some retirees, an annuity is a much better choice than cash or bonds.
But for L.A., since he or she is not retired, don't worry about the annuity yet, and also the longer you wait to buy an annuity, the bigger payout you'll get because it's based on your life expectancy. So L.A., don't worry about that until later. For now, just choose bonds and cash, which I know is no fun, but also watching an all-stock portfolio go down 25%-50% right before you retire is also no fun.
Southwick: Women! If you aren't one, chances are there's still one in your life that you care about, whether it's a mother, wife, daughter, or friend; and while being a woman has many perks, such as being able to wear skirts in the summertime, it's not all sunshine and daisies. When it comes to saving for retirement, women face many headwinds, so today we're going to talk about those headwinds and what both women and men can do to overcome them together.
Brokamp: Dun dun dun!
Southwick: Yeah! So the first headwind: Women earn and have less.
Brokamp: Yes. So women earn approximately 80% of what men make, and they're also more likely to interrupt their careers to take care of either children or older relatives. According to the Social Security Administration, the typical woman spends about 12 years out of the workforce. That means she falls behind in her career, but also means she doesn't have as much time to accumulate retirement benefits or save in a 401(k). For example, according to the Employee [Financial] Wellness Survey from PwC, 49% of female workers have saved less than $50,000 for retirement, compared to just 30% for men.
Southwick: No. 2 headwind: Women receive less retirement income. This sounds like it's also a function of how much they make, right?
Brokamp: Yes. It's all related. According to the National Institute on Retirement Security, women 65 and older have 25% less income than men. Also female retirees are about 80% more likely to fall below the poverty line, and a big reason for this is lower Social Security benefits.
In 2014, the average benefit received by a woman was 23% less than received by a man. And part of that is because of what we talked about earlier -- that they spent some time out of the workforce. Social Security is based on your 35 highest years of earning, so if there were years when you didn't earn any money your benefit doesn't get any credit for that.
Southwick: No. 3: Women live longer. This is a good one, but also kind of bad.
Brokamp: Right. Of course, overall, it's a good thing, but when it comes to retirement planning it's a challenge, because generally retirement begins when a person leaves the workplace and ends when life leaves the person. So the longer you live, the longer the retirement that you have to fund. From birth, women live about five years longer than men. For people who make it to 65, that gap actually shrinks to about two to three years, but still they live longer.
That has all kinds of consequences, one of them being that they're going to spend more money on healthcare. According to Healthview Services, which is a company that develops software that projects medical expenses, a healthy 65-year-old woman who retires this year and lives to 89 is going to spend about $199,000, in today's dollars, on healthcare -- that's Medicare premiums, vision care, dental care -- as opposed to a 65-year-old male who lived to just 87. He's going to spend about $176,000 in today's dollars. So her medical expenses are going to be more than $20,000 more.
Southwick: Women are also more likely to spend part of their lives single.
Brokamp: Yes. My wife may not believe this, but marriage does enhance retirement security. Married couples are more likely to be adequately prepared for retirement than single folks. When you look at who's single in the 65-and-older group, 19% of men but 40% of women are single, and then once you get to the 85-and-older group, 85% of women are widowed. So they're more likely to live on their own, and they're also more likely to need some sort of long-term care later in life. According AARP, 70% of the people in a nursing home are women.
Southwick: Women also tend to retire earlier.
Brokamp: Right. So the Center for Retirement Research at Boston College says that the average retirement age for men is 64, whereas the typical women retires at age 62. This is often because wives retire when their husbands do, and on average, a husband is two to three years older than his wife. So they both tend to retire together. What that means for the woman is she has a shorter career, because she's retiring sooner, and she's going to live longer, so she's got a longer retirement to finance.
Southwick: And finally, the last headwind we want to talk about briefly is women often leave financial planning to their husbands.
Brokamp: Right. Several studies have shown that husbands tend to handle the investing and retirement planning of the household, whereas the wives take care of the budgeting, and the bill paying, and those types of things. The splitting up of financial tasks makes sense, but both spouses, to a certain degree, could be left a little ignorant about what's going on. The problem is, as we said earlier, more likely to happen if the husband's going to die first and the woman has to pick up the slack.
Also, several tests have shown that when it comes to financial literacy, frankly [neither] men nor women score particularly well, but women do score lower than men. They're not as equipped to handle taking on everything as maybe a man might be.
Southwick: So those were the depressing headwinds.
Southwick: Now let's talk solutions.
Brokamp: Let's talk solutions. The first thing, of course, is to become a money master regardless of your gender and your role in the marriage. Everyone has to be a financial expert. Even if you hire a financial planner, you have to know enough to know whether you've got a good financial planner.
In fact, according to a study from Hartford Financial Services and MIT AgeLab, couples who share the financial housework are actually more prepared than those who just rely on one person. And a couple that looks at finances together has taken more steps to prepare for what might happen if one of them passes away. So regardless of whether you're married or not -- regardless of whether someone handles most of the finances of a couple -- both people have to be knowledgeable.
Southwick: What's the first step someone should take to becoming a money master? Is there a book that you like? Obviously our podcast.
Brokamp: Of course. I'll give my classic favorite books. Personal Finance for Dummies, written by Eric Tyson. Actually there's other books, too, that he's co-written with another guy, named Bob Carlson. They have Personal Finance After 50. Personal Finance for Seniors. So they've got a whole series of books that are appropriate for whatever your age is. Then my favorite investing book is Stocks for the Long Run by Jeremy Siegel. But anything written by John Bogle is also a great help.
And really part of it is just being informed about what's going on. We've talked before about "The Letter From Your Dead Husband," which was an idea from Bob Hasmiller. [He] was a subscriber to my Rule Your Retirement service, and he, every year, laid out everything that was going on in their finances, because his wife just wasn't interested in it. Sadly, Bob passed away in the last year...
Brokamp: Very unexpectedly -- in a bicycle accident. So I'm sure his wife found it very helpful that all was laid out for her.
Southwick: The second thing women can do is to understand how divorce, widowhood, and remarriage might affect you.
Brokamp: Right. So the dissolution of a marriage, whether it's due to death or divorce, can be financially devastating to anybody, but particularly to a woman if she was not the primary breadwinner in the family. According to a 2013 survey conducted by the Women's Institute for a Secure Retirement, otherwise known as WISER -- which, by the way, is a great resource for women who want to learn more about finances -- half of recent widows experienced a 50% drop in income after their husbands died.
And I think about my mom's situation when I think of a lot of this stuff. My parents got divorced. Like a lot of moms, she stayed home and raised the kids. When she went back into the workforce, she was a florist. She was a florist her whole life, so she went back as a florist. A perfectly respectable job. Does not earn a whole lot of money.
She meets a guy. They get married when she's 59. He's older. He's retired. He's a retired cop, so he gets a pension. He says, "It's time for you to stop working, because it's time for us to go and enjoy our marriage and do all the fun things," which is great, except she retired early and when he dies, that pension is going to stop. So my mom has to think about what's going to happen when he does pass away. Does she have enough assets to take care of herself?
It's also important just to know how all these things affect benefits like pensions and Social Security. I don't want to get into all the details, but think about Social Security. For example, you are eligible to get benefits based on your spouse's work record as long as you were married for at least 10 years. If you were not married for 10 years -- you got divorced after nine years and you were a stay-at-home mom during that period -- you're not going to get any credit based on your husband's record; and, of course, you could flip-flop the genders on that, as well.
Widows' benefits are actually different from regular Social Security benefits. You can actually claim them earlier. It's like all Social Security. If you claim it early, you get a reduced benefit. But it is different, so if you are a widow, you should know how to claim those benefits if you need them.
And then, like I said, you're eligible to get benefits based on either a deceased spouse or ex-spouse's record; but if you get remarried before age 60, I believe it is, then you'd no longer have rights. So if you are married to someone who made a lot of money and has good Social Security benefits, get divorced after 10 years, then remarry someone who didn't has as much of an impressive work record...
Southwick: You married for love the second time around. It's OK.
Brokamp: You married for love, [but] you may be reducing your Social Security benefits. I'm not saying that's not why you shouldn't marry the guy. He might be a wonderful person...
Southwick: Just wait. Put it off.
Brokamp: Right. Wait until after age 60. So it's kind of a complicated thing, but you just have to be very aware of how all these different life changes and your marital status will affect all your other benefits. And a lot of what I said can also apply to pensions and healthcare in retirement that is provided by your ex-employer. Just be aware of all those things.
Southwick: The third thing that women can do is to keep benefits in mind when they take a job.
Brokamp: So the job you take will impact so much about your finances. It's not just your salary. It will be the healthcare you receive. It will be the quality of your retirement plan. It will be how flexible your employer is in handling family situations. It's important because not only are women more likely to be taking care of the kids; they're also more likely to be taking care of elderly parents or other older relatives.
So keep all that in mind when you're taking a job. Studies show that women who take jobs in the government, education, or healthcare actually have a higher retirement income and lower rates of poverty in retirement because those professions are more likely to provide a defined benefit pension -- that traditional pension. So keep all that in mind as you plan out your career and decide who to work for.
Southwick: And the fourth thing women can do is to delay retirement until everyone -- everyone is ready.
Brokamp: So just because one person in the marriage is ready to retire -- has some sort of benefit that allows him or her to do that -- doesn't mean the other spouse should also retire. When you look at your retirement plan and run through your retirement calculators, as I love to do...
Southwick: Me too.
Brokamp: ...you have to look at various scenarios. What happens if we both live to our 90s? What happens if only I live to my 90s? What happens if only you live to your 90s? How does that affect benefits? And if one person retiring at this age means that the other person's survivorship benefits from Social Security or from the pension or in any other way would be adversely affected, then maybe both people need to keep working.
Southwick: What about for the men? What can they do to help the women in their lives?
Brokamp: Since men generally are the people who are doing the retirement planning and the investing, just to do it with the survivor in mind. So you have to plan on taking certain benefits. Social Security, for example. If the man was the higher, primary breadwinner and takes Social Security early, not only will he or she get a lower benefit now, but will be passing on a lower benefit to the surviving spouse. If that means the surviving spouse will be in a bad place, then maybe he or she should delay.
We mentioned the "Letter From Your Dead Husband." It's important to set up your finances in such a way that it will be easy for a surviving spouse to know whom to contact. Where all the accounts are. Where the life insurance policy is. How things are invested. Things like that.
Southwick: So men listening, I'm sorry. You don't want to hear it, but you're probably going to die first. So, I'm sorry. Just assume that you're going to die first.
Brokamp: And this applies to not just men, but anyone who has a certain amount of financial sophistication, should we say. You've got to look out for your older relatives, plain and simple. I think a lot of these things -- the issues between men and women in retirement -- are generational. For example, there's that pay gap of 80%. [For] younger women in their 20s, the pay gap is only 93%. Today, in about 40% of households the wife is the main breadwinner compared to less than 25% back in 1987.
Southwick: Oh, wow. That's a big shift.
Brokamp: So to a large degree, I think this is generational, and as people like my mom get older and other generations like the boomers come up, it won't be as big of a deal. I think about my mom, for example, who is in her late 70s. My dad owned a business that he started in, I think, 1973 or 1974. 401(k)s didn't even exist back then. They didn't come around until the early '80s, so the whole idea of building up this big retirement account didn't exist. I think a lot of this will change as the years go on.
Southwick: And the last thing men can do -- one of. I'm sure there are others, but the last one we're going to talk about today that men can do to help their wives is making sure that they know the team. Who are we talking about with the team?
Brokamp: So if you use any financial services professionals -- it could be accountants, advisors, attorneys, life insurance agents -- both spouses should at least know what these folks do for you and how to contact them. And if you don't use anyone like that -- if you have a situation where one person handles all the financial planning, investing, and things like that, and the other spouse isn't interested -- maybe start building a relationship with someone that you trust now. [Then] if the need arises in the future where the person who handles most of the finances is unable to do so, you already have a relationship with someone and the survivor doesn't have to go out and find a financial professional they trust when they're in a situation where they don't really feel comfortable making that decision.
Southwick: The bottom line is, while it may be rough it's getting better, and everyone can be part of the solution to help all of the ladies we love get into retirement. Everyone should have a fun retirement!
Southwick: Those of you who listen to Market Foolery, our sister...sister podcast? Sister? Brother? Daily podcast? What do we call them?
Jason Moser: We're agnostic.
Brokamp: Colleagues with benefits?
Chris Hill: Little sibling.
Southwick: Little sibling.
Moser: I like that. Colleague with benefits.
Southwick: Those of you who listen to Market Foolery -- it's our daily podcast hosted by Chris Hill -- know that they have concerns about a current trend sweeping the nation. No, it's not the fashionable trend of rompers for men -- which I personally am on board with. I have no concerns with them.
Brokamp: Wait till they come into work wearing one. We'll see if you feel that way.
Moser: Yeah, let's get your husband in here as a guest on the podcast and let's revisit this. Do you think he's going to feel the same way about rompers that you do?
Brokamp: The Ron Rompers.
Moser: I don't think so.
Southwick: The Ron-per. It's also not the Fidget toy. It's the Oreo -- specifically the unhinged proliferation of flavors such as Watermelon, Firework, and Peeps. Now, Mondelez (NASDAQ:MDLZ), the maker of Oreo, has announced a competition with a $0.5 million prize for suggesting its next Oreo flavor.
Joining me in studio to talk about this trend, and also taste-test some of these new Oreo flavors, are Chris Hill and Jason Moser. Hi, guys!
Brokamp: Welcome to Answers!
Hill: It's good to be here. This is my first time on Answers.
Brokamp: It is.
Southwick: It's exciting.
Moser: He's on the other side of the microphone.
Hill: I am literally on the other side of the table.
Moser: He is. He's on the yellow mic.
Hill: It was slightly awkward, because Alison came in the studio, and stopped and looked at me, and she said, "You're sitting in my seat." And I said, "Oh, that's... That's... I'm used to sitting in the..."
Southwick: The host seat.
Hill: The host seat.
Moser: Now you know how I feel every Friday when I come in for Motley Fool Money with Ron.
Hill: There you go.
Southwick: So first off, guys, why do you hate innovation so much? Also America. Why do you hate America?
Moser: I think I will stand -- I will jump in here first and say I don't really hate America or innovation as much as perhaps Chris does. Chris seems to really be anti-Oreo innovation, or perhaps it's just the Peeps. I'm not sure.
Hill: The Peeps Oreos set me off, but here's the thing. I've made this point on Market Foolery and I stand by this point. If you're a Mondelez shareholder, I think it is legitimate to ask [whether] there are too many people working in the Oreo division. This is the No. 1 cookie in America. For years it's been the No. 1 best-seller. So why do you need 16 new flavors? I feel like they're drunk with power in the Oreo division. I think that if you work in the Oreo division at Mondelez, you can suggest any flavor you want, and it'll be like, "Sure, we'll do that. You know why? We've already got the No. 1 best-seller. We'll try anything."
Moser: It's the ESPN of cookies.
Southwick: Well, it's possible the [research and development] team...
Brokamp: And how are they doing so great?
Moser: Well, precisely.
Southwick: ...heard about Chris's whole bourbon and Oreo thing, and now they're just drinking bourbon and making Oreos.
Hill: They might. They might. It would explain a lot, frankly.
Southwick: All right, well, what I have for you -- it makes for horrible radio, but let's just go for it -- are four Oreos. They are new flavors. I'm going to place them in front of you and we are going to do a blind taste test to see if you can first off identify what the flavor is, and then also we'll figure out which one is your favorite.
Moser: Now these are Oreos, right? They're not like Grasshoppers or...
Moser: Hydrox, yeah. Like some generic form of...
Southwick: These are not Joe Joe's from Trader Joe's. No.
Moser: So this is the real deal.
Brokamp: And our eyes will be closed, so we will not be able to see them.
Southwick: I know, and I'm going to trust you guys, so here I [go].
Brokamp: That was his first pick. You should close your eyes now.
Southwick: Eyes closed.
Southwick: Yours is sitting right in front of you. This is six o'clock right there.
Brokamp: OK, I've got it.
Southwick: We're going to start. You've got yours? Rick? You may try your first Oreo.
Brokamp: All right. Hm! Graham cracker.
Moser: Who's to say? There's a cinnamon something to this.
Hill: I'm going to go Cinnamon Bun.
Moser: Are we going to get some help, here?
Southwick: No. I don't need to because I'm going to give the point to Chris because he got it right. Cinnamon Bun.
Moser: It is good.
Southwick: I like the Cinnamon Bun one.
Brokamp: That actually was good.
Southwick: All right. Let's go to three o'clock. Everyone touch your three o'clock cookie.
Southwick: Nope, yup. Now you're good, Jason. This is going to be hard.
Moser: Oh, whoa, whoa, whoa. No, it's pleasant.
Hill: I think pleasant is an overstatement.
Moser: It is sweet.
Hill: This is too sweet.
Rick Engdahl: The cream filling is just all wrong on both of these. It's not the right texture. It's not the right consistency.
Southwick: Well, I'll tell you what is going on with these cookies. Because they are such new flavors, these Oreos are really fresh. Like the cream really moves.
Southwick: I don't know what I'm talking about. I'll give you a hint. Jason, your Southern roots.
Hill: It tastes like sugar and depression.
Southwick: Hey! I'm going to give it to you!
Southwick: It's Red Velvet.
Southwick: Let's head to six o'clock.
Brokamp: Are we going?
Southwick: Yeah, go for it.
Moser: Oh, this is some kind of butterscotch something. But it tastes like some kind of walnut or pecan. I...
Hill: I don't think it's hazelnut, because I hate hazelnut, so...
Moser: Hazelnut Frappuccino?
Southwick: It doesn't sound like you guys studied up on Oreo flavors before coming in here, and I appreciate that.
Moser: I don't know.
Engdahl: They're kind of mealy. It's like a cake frosting or something.
Southwick: Yes, Engdahl's going in the right direction.
Hill: Birthday cake?
Southwick: Birthday cake!
Brokamp: Wow, man. Chris is nailing it.
Southwick: All right, last one. Let's see how you do. Go for it.
Moser: See, to me, this just tastes like a regular Oreo.
Southwick: Yes, but are you getting any sort of sensation aside from flavor?
Brokamp: Pet rocks.
Hill: Is it the firecracker?
Southwick: It's the Firework one.
Moser: I do...I do feel it now.
Brokamp: Oh, it is. Ugh! I can feel it.
Southwick: Do you feel it?
Moser: The taste is a disappointment.
Engdahl: This is not a very big fireworks show.
Moser: Well, I feel the popping. Now I'm like feeling it. Absolutely!
Engdahl: That's what I'm talking about. There should be more popping. There should be more pop rocks.
Engdahl: There should be more pop rocks.
Southwick: You should feel pain. The physical pain of... Yeah.
Southwick: So, all right...
Brokamp: It's still popping. I'm telling you.
Southwick: Which one's your favorite?
Brokamp: I think the first one.
Southwick: Cinnamon Bun?
Brokamp: Yeah. I think so.
Hill: Yeah. If I was a hostage somewhere and they said you can have one of these four cookies, I'd go with the Cinnamon Bun.
Moser: See, I'd go with the Firework one, because to me that tastes like a regular Oreo and honestly, to me, a regular Oreo is better than any of the other ones.
Engdahl: I'm with Jason on that.
Moser: Fireworks effects notwithstanding...
Hill: I think you're very trusting that they're being precise with how many pop rocks go into each one, and you're assuming that you're not going to get like a rogue cookie that's just loaded up with pop rocks.
Moser: And to this guy right here. I think the key to this show is the shot of bourbon after all of the cookies are done. Then you really tie Chris Hill into the episode.
Southwick: I brought the right Solo cups.
Moser: Which may or not be bourbon.
Southwick: Who's got some bourbon at their desk, huh?
Hill: Next stop, my desk.
Southwick: All right, thank you guys for joining us...
Moser: Thank you.
Southwick: ...and for indulging us. And if you do want more Oreo cookies there are more at my desk.
Hill: No. Thank you for not having Peeps.
Southwick: So Chris and Jason actually spend more time talking about stocks than Oreos over on Market Foolery, at least I hope so. So if you want to check out their podcast, it's our daily podcast here at The Motley Fool and it's just a really fun discussion about stocks making moves that day.
I also want to thank Levi for the idea for the Oreo taste test. Or you guys can blame him. He gave us the idea over on our Facebook podcast group. If you're on Facebook and not part of the podcast group, you should join it and check it out. It's a lot of fun people talking about money, and stocks, and Oreos. We have a good time.
Brokamp: What's the actual name of it? Is it Motley Fool Podcasts?
Southwick: It's Motley Fool Podcasts.
Brokamp: Look it up on Facebook.
Southwick: It's a private group, so you have to ask to join, but we'll let you in. Just tell them you know Alison. That's cool. I'll give you the secret knock.
All right, that's the show. It is edited forgivingly by Rick Engdahl. This was a tough episode to edit, and I appreciate him and all the work he does on the show. Thank you, Rick Engdahl.
Our email is Answers@Fool.com and, I don't know. For Robert Brokamp, I'm Alison Southwick, and I have had one too many Oreos. Stay Foolish, everybody!