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Despite Their Financial Power, Women Save Less Than Men: Merrill

By Melanie Waddell

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Women tend to save less for retirement than men, despite the fact that women now enjoy more financial power than ever.  Thirty-six percent of all U.S. businesses are owned or led by women, according to newly released findings by Merrill Lynch.

Merrill cites a number of sources — including the National Women’s Business Council for the aforementioned statistic — to conclude that women should start saving more. Merrill also cites stats by The World Bank, which predicts that women’s earnings globally will reach $18 trillion by 2014.

According to the U.S. Census Bureau, the current life expectancy for a woman is 80.5 years, while it’s 75.5 years for a man, Merrill states. “While longevity continues to increase for both sexes, the U.S. government projects that the longevity gap between men and women will exist for the foreseeable future,” Merrill notes.

That longer life expectancy means that women may need more income than men do to last through their retirement years.

“Despite their growing economic might, women still have a more difficult road to a secure retirement than men,” notes Debra Greenberg, director of IRA product management at Bank of America Merrill Lynch.

Hurdles, she says, are that women still make 80 cents for every dollar earned by men and that they are much more likely to interrupt their careers to care for a child or a parent, which can result in a reduction in both wages and Social Security benefits.

Other retirement hurdles include divorce, which tends to have a bigger financial impact on women than on men.

Merrill cites a study by Duke University and Indiana University titled “Losers and Winners: The Financial Consequences of Separation and Divorce for Men,” which showed that in the wake of a divorce, women’s household income fell 26%, compared with 15% for men.

The good news: armed with an understanding of both your retirement needs and present opportunities to invest and save, there are a number of steps women can take to overcome these retirement challenges.

Living longer often means more medical bills: Merrill cites findings by The Employee Benefit Research Institute, which found that a female retiree of 65 may need an average of $242,000 in savings for health care, insurance and other health expenses (if she has no company, military or union plan).

“Many people assume that health insurance and Medicare will pay for assisted living or a nursing home, but that’s usually not the case,” states Merrill. “For that reason, it’s usually smart to consider purchasing long-term care insurance.”

Merrill notes that if women think there’s a possibility that they may temporarily downscale or step away from the work force at some point, it may make sense to prepare for that well in advance. “If possible, make the maximum contribution to your workplace retirement plan. If you are eligible, funnel additional funds into a traditional or Roth IRA.”

Greenberg suggests that if a woman can’t contribute to a deductible IRA because of her income level or coverage by an employer-provided retirement plan, consider a nondeductible IRA. “You’ll have to fund it with after-tax dollars and potentially pay taxes on withdrawals in retirement,” she says. “Thanks to compounded growth, spending a little less while you’re younger can help to significantly boost your retirement stash. Go through your monthly bills and identify places where you can cut back. Almost everybody can find that extra $50 a month somewhere.”

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