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.
Lower lifetime income
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.