In the extended wake of the recent Great Recession, the 2011 Retirement Confidence Survey published by the Employee Benefit Research Institute (EBRI) reported the lowest percentage of workers confident in a financially secure retirement in 21 years. Confidence levels were especially low for women. Just 10 percent of women, compared to 17 percent of men, reported being confident that they will have enough money to live comfortably throughout their retirement years. Interestingly, a gender gap of roughly seven to nine percentage points persisted throughout the survey, whether the questions addressed the ability to save for retirement or readiness to meet basic retirement expenses.
The EBRI study also provides insight into the roots of women’s lack of retirement confidence. The report found, for example, that 35 percent of women surveyed believe they will need less than $250,000 to fund retirement. This compares with just 26 percent of men who believe $250,000 is enough to support them in their golden years. More problematic, 12 percent of women, compared to just 5 percent of men, say they do not know how much they will need to save for retirement.
Women falling short on their retirement estimates and failing to plan ahead is particularly troubling considering that women live longer than men and, therefore, need to save more for retirement. Consider these facts: The Women’s Institute for a Secure Retirement reports that there are six million more women than men ages 65 and over in the United States. What’s more, according to the U.S. Census Bureau’s “Current Population Survey, 2010 Annual Social and Economic Supplement,” today, 57 percent of American women 65 or older-compared with just 26 percent of men in that age group-live alone and shoulder all the financial responsibility of monthly bills, real estate taxes, and home upkeep.
Yet, even when viewed alongside that statistical backdrop, the EBRI study holds some good news on the gender divide. For instance, men and women were both likely to say they are currently saving for retirement. What’s more, women were statistically as likely as men to report they are offered and contribute to a work-place retirement savings plan and invest in an individual retirement account (IRA).
Therefore, one key to increasing women’s confidence in their ability to support themselves during retirement is to ensure they begin saving early. Also, it’s crucial for women to stay actively engaged with investing, even if they temporarily leave the workforce to raise a family or care for aging parents. More specifically, women who want to save more should, first and foremost, maximize contributions to their tax-advantaged retirement savings accounts, such as 401(k)s and IRAs. And, anyone older than age 50 should make the maximum catch-up contributions.
It is also critical, especially in this volatile market, that all investors review their investment strategy to ensure it reflects their risk tolerance and supports their short- and long-term financial goals. Moreover, the more specific and realistic women investors can be about their intended future lifestyle, the better able we will be to establish a steady stream of reliable income to support them throughout retirement.
However, while I encourage women to save for retirement, I also advise them to set realistic savings goals based on their income, which is likely to be less than their male counterparts’ earnings. In fact, according to the U.S. Census Bureau’s “Median Earning of Workers 15 Years Old and Over by Work Experience and Sex” (updated in September 2010 by the National Committee on Pay Equity), full-time, working women earn 77 cents for every dollar that a man earns. With less to invest, women often adopt an investment philosophy that is too conservative, favoring what they perceive as “safe” investments. This can make it challenging to fund long-term goals.
In many cases, meeting long-term goals will require women to overcome their fear of market risk. Often, I find that establishing an emergency account with more than six months of expenses and purchasing disability insurance can help women feel comfortable taking on a little more risk in their investment portfolios. Also, investing in a diversified portfolio-stocks and bonds, domestic and international, value and growth-can minimize overall portfolio volatility and ensure that women stay invested, even through difficult markets. Additionally, it can be helpful to stay informed on the market’s long-term outlook by participating in the many seminars, conferences, and social events targeted to women who are interested in learning more about investing and improving their financial decision-making. Studies show that women constitute half of the U.S. workforce and control more than 50 percent of the wealth. There’s no question that those numbers could increase dramatically if women continue to educate themselves and make decisions that will boost their financial confidence and secure their financial well-being.
To summarize, achieving a financially secure retirement requires women to begin saving early in life and contribute to a 401k or IRA, set realistic savings goals and potentially take on more risk, establish an emergency fund and purchase disability insurance to increase their sense of security, and diversify investments to minimize the impact of volatility. Finally, it’s important to stay informed on changes in retirement planning and engaged with the market. To that end, I am always available to answer questions.