Retirement crisis is a catastrophe for women
May 5, 2014 by Andrea Coombes
If there’s a retirement-savings crisis in the U.S., women will bear the brunt of it.
They tend to earn less money than men, and to leave the workforce more than men do to care for others. Plus, thanks to longer life spans, women, on average, need more money to fund a longer retirement.
“Women face the reality of longer lives with fewer financial resources to fall back on. They need more than men, but have less,” said Debra B. Whitman, executive vice president for policy, strategy and international affairs at AARP.
The reasons for that are varied. For one, while the pay gap is narrowing, it still exists. Based on hourly earnings of full- and part-time workers, women make about 82% of what men earn, according to a report from the Pew Research Center.
Also, women are likelier to leave work to be unpaid caregivers for children and relatives. That “makes it harder to build up a nest egg,” Whitman said.
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Plus, women have a higher chance of ending up alone in old age, Whitman said. “Women have longer life expectancies — two extra years for those who reach age 65 — and married women are often about three years younger than their male spouses.”
Many older women already are living through their own retirement crisis. In 2012, more than 2.6 million women age 65 and older lived in poverty in the U.S. — more than twice the number of men (almost 1.3 million), according to the National Women’s Law Center, citing U.S. Census data.
Meanwhile, women currently in the workforce appear to be saving less than men. One study found that, on average, men had $100,000 in their 401(k) plan, compared with women’s $59,300. The variation was true across all salary levels.
The caveat, of course, is that individual situations vary widely. But other data point to a worrisome retirement outlook for women:
- Only 7% of women say they’re “very confident” about being able to retire with a comfortable lifestyle, and 43% of women say they expect to work past age 70 or to never retire (Transamerica Center for Retirement Studies)
- 29% of retired women have a pension, compared with 50% of men, and 27% of women who are close to retirement age live paycheck to paycheck, compared with 19% of men (study by retirement-plan provider Voya Financial, formerly ING)
- 36% of women versus 63% of men are comfortable selecting investments that are right for them (survey by consulting firm PwC)
- 71% of women who had a 401(k) loan outstanding when they left their jobs defaulted on the loan, versus 64% of men (Aon Hewitt)
Women also face the prospect of higher health costs in retirement, partly because longer lives mean a longer period paying for health care, but also because they’re likelier to end up alone, without a spouse to care for them.
“They may have to get a more expensive type of care,” said James Nichols, head of retirement income and advice strategies at Voya Financial in Windsor, Conn.
On the other hand
Phew. Depressing, right? Wait. It’s not all bad news.
First, planning and investing for retirement is not rocket science. If it were, only a handful of men and women could do it, and we know that’s not the case.
Second, women have an edge: a tendency to research investments diligently before buying. And they ask a lot of questions.
“Women are more likely to ask for help and are more likely to want to gather a lot of data,” said Nichols, citing a Voya Financial study.
Third, women tend to avoid trading in and out of investments. That bodes well for their long-term investment returns.
One study of 35,000 brokerage accounts found that men trade investments 45% more than women, and that behavior reduces men’s net return by 2.65 percentage points a year, compared with 1.72 percentage points for women.
Get involved
Are you wondering how to get going on retirement saving?
The first step is to take an active role in retirement-plan decisions. While women often are in charge of household spending, they’re less likely to be in charge of retirement investing.
“Think about being retired for 30 years. Isn’t that something you want to be a part of planning for?” said Sheila Gugliuzza, a managing director of individual advisory services at financial-services firm TIAA-CREF.
Ignore the jargon
Does the idea of “10 hot stocks,” “riding the bull market” or “playing a stock split” leave you cold? Focus instead on your own motivation for investing, whatever it may be.
“‘Beating the market’ is not necessarily something that motivates me,” Gugliuzza said. “Now, if you talk about taking care of my kids, myself, my family, that makes it interesting.”
Tune out the noise and focus on what matters to you. “Even though you might be using the same mutual funds, ETFs and bonds for men and women, for women it means security, it means helping their family,” said Kevin Ellman, a certified financial planner with Wealth Preservation Solutions LLC.
Generally, men are more focused on investment performance and “the prestige of having an excellent result,” he said. “It’s a whole different dynamic.”
Save now, save more
Can you set aside 15% of your income for retirement? Do it. If you can’t afford that, start with 3% or whatever you can afford above that, and build over time. No matter how old you are, whether or not you’ve got any savings at all, just start now.
Don’t let inertia get the best of you. “There are so many competing interests for our time, focus and attention and certainly for our dollars,” Nichols said. “The sooner you can start saving, the longer you can benefit from compounding and growth and market cycles.”
If you’re not sure how to invest, look into a target-date or life-cycle mutual fund — with these products, you invest in just one mutual fund, which then invests in a broadly diversified group of mutual funds on your behalf.
You may end up paying slightly higher costs for a target-date fund than if you invested in that same diversified group on your own, but it’s better than failing altogether to invest for retirement.
Worried about stock-market risk? It’s definitely something to consider — there will be years when your account balance drops. That said, if you leave all of your money in a money-market fund or savings account, you’re embracing another risk — your dollars will not grow and inflation will take an annual bite. If you expect to live a long time and your retirement savings will need to fund many years, give serious thought to investing in low-cost index mutual funds that invest in the stock market.
If you don’t have access to a workplace retirement plan, consider opening up an IRA with a low-cost provider such as Vanguard Investments. If a Roth IRA makes sense for your situation, consider that, in the event of an emergency, you can always withdraw, without penalty, the contributions you made (don’t withdraw your investment earnings without first reading up on the rules; it can be costly).
Write it down
Start thinking about how you will provide for yourself in retirement. If you’re married, think about what happens in the event of a divorce or your spouse’s death. It’s not fun, but it’s essential to consider the possibilities and plan for them.
If you’re young, saving early and often is a great place to start. If you’re staring at middle age or you’re older, think about what you want your retirement to be like. What does retirement mean to you?
Then, write down your retirement plan. A simple plan entails writing down what you think your expenses will be, and where the money will come from to pay those bills. Writing this stuff down can ease anxiety. Read more: Write it down and plan for retirement success.
If it seems as though expenses will exceed savings, think about how saving more now, working longer or cutting your expenses might help. Use an online retirement calculator.
Understand Social Security
Do your research before making a decision to claim Social Security. Working beyond your “full retirement age” (about 66 or 67 for most people in the workforce now) guarantees a higher monthly benefit for the rest of your life.Think of delaying benefits as insurance against a long life. If you delay benefits and then die within a few years of retirement, you’ll have lost out. But, at that point, it won’t matter to you. For those who live into their 80s and 90s, the higher monthly benefit that accrues from delaying is hugely valuable.
Every year you delay, your benefits increase by about 8% of your full-retirement-age benefit (there’s no increase after age 70). Say you’re eligible to collect $750 a month at age 62. You’d get almost twice that — $1,320 — at 70 (this example assumes the beneficiary stops work at 62).
The monthly benefit at age 70 jumps to $1,672 if you assume a 3% annual cost-of-living adjustment (actual COLAs vary each year).
Also, consider that your benefits are based on your work history.
“You have to have 10 years of working history to get Social Security — 40 quarters of work,” Ellman said.
“Say you’re 55 and you’re thinking, ‘Maybe I’ll stop working’ and you realize if you work two more years you could qualify for Social Security. You need to know that information.”
Get your current statement from the Social Security Administration. Go to SSA.gov and register on the site to see your personal statement.
Andrea Coombes is a personal-finance writer and editor in San Francisco. She’s on Twitter @andreacoombes.
