Women face a variety of unique challenges in retirement planning. Compared with men, they tend to live longer, contribute less to tax-qualified accounts and draw less from Social Security. They also face higher (and more) healthcare and long-term care costs. And with their longevity comes a longer period of time during which inflation, disability and tax hikes can reduce their savings.
All this leads to the conclusion that women are more concerned about retirement than men. A Greenwald & Associates survey for the Insured Retirement Institute found that 54 percent of women are very concerned about retirement; only 34 percent of men feel the same. The Transamerica Center for Retirement Studies likewise found that only 12 percent of women were very confident in their ability to retire, and 64 percent of boomer women don’t have a plan if forced to retire early.
Still, the investment advisory community is still largely struggling to meet women’s needs. Seventy percent of women leave the advisor who served them or their husbands after that husband’s death or divorce, and 73 percent are dissatisfied with the financial services they’ve received. Moreover, roughly two-thirds of women seek investment information from family members but only one in three uses a professional advisor.
For forward-thinking advisors, the situation represents an opportunity for change, growth and wider appeal. Women already control a majority of U.S. personal wealth – $14 trillion as of 2015 – and their stake is projected to increase to $22 trillion by 2020. Advisors who understand women’s unique retirement needs will be better positioned to manage a portion of that growing wealth for several parties: retiring boomer couples, single retirees and women working and saving for eventual retirement.
The caretaker’s role
“One of the biggest challenges is that women, for the most part, are caretakers, and their first inclination is to take care of someone else,” says Edward Jones’ Jennifer Marcontell, one of Barron’s Top 100 Women Advisors. “They often won’t fund retirement accounts appropriately, or they’ll take on debt to make sure their kids have better lives.”
In fact, a T. Rowe Price survey found that three-quarters of parents were willing to postpone retirement to pay for their kids’ college, and 69 percent said they’d sacrifice retirement savings for college funding. Four-year degrees average $12,890 and $24,430 per year at public and private institutions, respectively – a major chunk of a nest egg.
By a wide margin, women are also the primary unpaid caregivers for aging and disabled family members. Caregiving reduces paid hours for middle-aged women by 41 percent, and female caregivers over 50 will lose an average of $324,044 in wages and benefits over their lifetime.
Sandwiched between generations, boomer and Gen X women often take on both of these costly responsibilities. Nearly half of adults aged 40 to 59 have a parent 65 or older and are raising a minor or supporting a grown child.
On average, women make less than men – for a host of reasons.
“The pay gap is actually not that wide until age 35, but after that it starts to widen significantly,” says Karen Wimbish, senior vice president at U.S. Bancorp Wealth Management. “Women leave the workforce or go part time to take care of children, and they bear the majority of responsibility for aging parents.”
Lower lifetime income means fewer available funds for 401(k)s, IRAs and other tax-qualified investments. It also means depleted funds for children’s college, dependent parents and the other costs that can often draw a woman’s attention away from their own retirement plans.
Because Social Security is based on a retiree’s top-earning 35 years, a lower income also means lower lifetime benefits. Depending on a woman’s age when she has her first child, how many children she has and whether or not she re-enters the workforce, she could have quite a few zeros on her record. Even so, 80 percent of married women file for Social Security benefits early – often at the same time their husbands file – forfeiting even more of their lifetime benefits.
The jury is out on whether men or women proportionally contribute more to their 401(k)s. Vanguard Center for Retirement Research data suggests women save anywhere from 7 to 16 percent more than men, while the Transamerica Center for Retirement Studies says men save 10 percent of total income compared with women’s 6.
But due to disparities in income and risk tolerance, women’s account balances tend to be smaller: $79,572 vs. the men’s $123,262, according to Vanguard.
“It’s not so much that women under-save, and there’s actually some evidence they save more,” says Wimbish. “The problem is that they’re more risk-averse and don’t accumulate as much.”
That data come from full-time workers, of course, and once women reduce their hours or leave the workforce, contributions drop. What few sources dispute is that, because women live longer, work fewer years and face higher retirement costs, they need to accumulate more.
Health and longevity
Longevity is a top concern for boomers in general, who are living longer than any prior generation. It’s an especially great concern for women, who outlive their husbands by five to eight years. An optimized Social Security strategy can provide a moderate amount of lifetime income, but a longer life ultimately exacerbates the income disparities, savings deficits and caretaking costs women shoulder during their working years.
A long lifespan also can also bring greater healthcare concerns. Healthcare inflation is significantly outpacing prices on consumer goods, Medicare premiums are rising and Social Security’s cost of living adjustment is all but ineffectual.
“We do see deflation on things like clothing, but when you’re 75 years old, you’re not going and buying new clothes,” says Marcontell. “What you’re having to pay is medication costs and healthcare costs, as well as service costs.” Overall, three out of four women say healthcare is a top concern when thinking about retirement.
Long-term care, too, is a more likely cost among women. While men often depend on their wives as they age, only 38 percent of women over 75 have a spouse capable of providing care. Overall, they’re more likely to need hired help, whether it’s provided in the home or a facility, and 70 percent of nursing home residents are women.
A lack of involvement
Finally, women – especially married women and those who divorce after retirement – tend to be less involved in their own retirement plans and underrepresented in the financial industry. Over one-third of women retire at the same time their spouses do, forcing them to tap assets that were designed to last a lifetime.
Fifty-five percent of women also say they feel less knowledgeable about the financial markets than the average investor, compared with 27 percent of men.
“I think there’s a big knowledge gap and fear of uncertainty,” says Marcontell.
Wimbish echoes that sentiment, noting that, “Somehow, in our industry, the lingo and ways we talk about money and investing don’t resonate well with women.”
Addressing longevity risk
Between longer lives, smaller assets and significant caretaker responsibilities, women face several unique challenges in retirement. In Part 2 of this series, we’ll discuss a few ways advisors can help women address these challenges, as well as strategies for bringing female clients into the fold.