FINANCIAL PLANNING
February 21, 2020
Women Will Bear the Brunt of the Retirement Crisis
A retirement crisis is brewing in America, and unless they make proactive changes, women will bear the brunt of the problem. Only 12% of women are ‘very confident’ in their ability to retire comfortably.
BY Lisa James & LORI ZAGER
Despite higher levels of education and improving ability to land high-powered jobs, women significantly lag men in saving and investing for retirement. Data from the recent Transamerica Center for Retirement Study shows only 68% of women pursue retirement savings plans compared to 81% of their male counterparts.
There are both practical and behavioral reasons why women have fallen into this retirement predicament.
There are both practical and behavioral reasons why women have fallen into this retirement predicament.
Why Are Women at a Disadvantage?
Women are often so busy taking care of others that they fail to prioritize their own needs
Working part-time means women are less likely to be offered workplace retirement benefits, therefore missing out on a big incentive to save. Research shows employees who have access to retirement plans are 15 times more likely to contribute and may receive and employer match to boot. Fully 30% of women are not offered any retirement benefits at work.
Leaving the workforce periodically (to care for others) slows earnings growth for women and contributes to the persistent wage gap between men and women. With lower income comes a lower ability to save for retirement.
Full time working women often spend their limited spare time caring for their family. With little time available for acquiring financial literacy, many women feel ill-equipped to make investment choices. Therefore, retirement plans may get only a cursory look or are left to their spouses.
Working part-time means women are less likely to be offered workplace retirement benefits, therefore missing out on a big incentive to save. Research shows employees who have access to retirement plans are 15 times more likely to contribute and may receive and employer match to boot. Fully 30% of women are not offered any retirement benefits at work.
Leaving the workforce periodically (to care for others) slows earnings growth for women and contributes to the persistent wage gap between men and women. With lower income comes a lower ability to save for retirement.
Full time working women often spend their limited spare time caring for their family. With little time available for acquiring financial literacy, many women feel ill-equipped to make investment choices. Therefore, retirement plans may get only a cursory look or are left to their spouses.
Women don’t make retirement planning a high enough priority
- Even when offered a workplace plan, only 73% of women participate.
- Women’s contributions to retirement plans average only 8%, well below the 15% recommended by most advisors.
- Very few women have a written retirement strategy and fewer than half have any plan at all.
- Women with children may prioritize private education expense over their own retirement.
- Women don’t spend much time discussing finances with friends, family, or advisors.
Women are likely to live longer
Longer lifespans mean women need to save more to achieve their retirement goals. Women’s life expectancy is 5 years longer than men’s, and they need to plan for those extra years of spending. They are also more likely to need long-term care as they age.
Longer lifespans mean women need to save more to achieve their retirement goals. Women’s life expectancy is 5 years longer than men’s, and they need to plan for those extra years of spending. They are also more likely to need long-term care as they age.
Behavioral biases affect the way women invest
- Immediacy bias – The primal part of your brain responds much more strongly to things that affect you today. So, with a myriad of current priorities, it’s easy to put off retiement planning for tomorrow.
- Avoiding activities that make you uncomfortable – A majority of women give themselves a low score in investment knowledge, so it’s understandable they avoid digging into financial topics.
- Risk aversion – Studies show women are less comfortable taking investment risk, which historically leads to lower long-term investment returns and smaller retirement portfolios.
What Changes Can Women Make?
How to contribute
- Start contributing to retirement savings in your 20s, as your early contributions have the most time to grow in a tax-advantaged way. Men start at an average age of 26 compared to women at 27.
- Consistently save 10% to 15% of your annual earned income (salary, commissions, bonus), using bonuses as an opportunity to save more instead of spending more.
- Contribute to a Roth 401k or Roth IRA in your early (lower tax bracket) working years or if you are likely to be in a high or higher tax bracket in retirement.
- If you’re a high earner (over $200,000), additionally contribute to an after-tax IRA and/or a taxable account in order to keep your savings level at 15% of income.
- After age 50, take advantage of catch-up provisions in retirement plans and IRAs.
How to invest
- Contribute consistently whether the stock market is up or down
- Create a diversified portfolio of low-cost funds. There are many index funds, mutual funds and ETFs available for this purpose.
- Allocate a higher amount to equities when you’re in your 20s and 30s and pare down overtime as you approach retirement.
- Understand your own risk tolerance - the amount of stock market turbulence you can stomach - and invest accordingly. If you can withstand big swings in your portfolio, then you can typically hold a higher percent in equities.
- Avoid the temptation to pull out of the market in big downturns!
How to demystify investing
It’s helpful to spend regular time talking to your family and friends who are financially knowledgeable. Men do this far more than women and generally rank themselves as more financially confident. Attending a few seminars or webinars about basic financial planning and investing can go a long way toward increasing your comfort levels.
Take the time to work with a financial planner or financial advisor and create a plan tailored specifically to you. Studies show people with a written plan and an advisor are much more likely to stick with it. Having someone in your corner can help you achieve your goals!
It’s helpful to spend regular time talking to your family and friends who are financially knowledgeable. Men do this far more than women and generally rank themselves as more financially confident. Attending a few seminars or webinars about basic financial planning and investing can go a long way toward increasing your comfort levels.
Take the time to work with a financial planner or financial advisor and create a plan tailored specifically to you. Studies show people with a written plan and an advisor are much more likely to stick with it. Having someone in your corner can help you achieve your goals!
The most important changes you can make…
Get more intimately involved in your financial life & make retirement savings a priority!
Get more intimately involved in your financial life & make retirement savings a priority!
The information contained herein should not be considered advice that is specific to your personal circumstances, but a general guide when assessing and/or making decisions related to your finances. Nothing contained herein is intended to be a formal research report, or as a source of any specific investment recommendations and makes no implied or express recommendations concerning the manner in which any accounts should be handled. The information contained herein is not intended to be comprehensive, and there may be other factors and questions relevant to your own individual situation. Any opinions expressed in this material are only current opinions and while the information contained is believed to be reliable there is no representation that it is accurate or complete and it should not be relied upon as such. Investing involves risk, including loss of principal, and no assurance can be given that a specific investment objective will be achieved. You should consult a professional legal and tax advisor for any tax and estate planning advice prior to taking action.
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