By nature, women tend to be caring and careful. But the same tendencies that prompt them to nurture and protect their families may result in some women sabotaging their own retirement preparedness.
Now the impact of Covid may further undermine women’s retirement readiness. More women left the workforce during the pandemic as a result of closed schools and daycare centers, and many have not returned.
“Because we are predisposed to be caregivers and we are taught to be careful, women are apt to take less risk, including in their finances,” said Michelle Connell, owner of Portia Capital Management in Dallas-Ft. Worth.
“Women are really good at understanding downside risk and tend to keep a higher portion of the savings in cash,” Connell told me in a recent interview. “But they need to balance that caution with understanding the upside and opportunity of investing in stocks.”
Citing a 2018 J.P. Morgan study on Women & Retirement, Connell noted that women have made great strides in education and employment over the past 50 years, but still lag behind men in terms of income and assets. Women have outpaced men in postsecondary enrollment and education attainment since the early 1980s, but still earn about 80 cents for every $1 a man earns on average.
Lower lifetime earnings make it harder for women to save for retirement, particularly if they take time out of their careers to care for children or elderly family members. And those time-outs for caregiving are costly. The typical female caregiver loses more than $324,000 over her lifetime as a result of lost wages, retirement savings and Social Security benefits, according to the National Alliance for Caregiving in collaboration with the AARP.
Because of women’s longer life expectancies and the likelihood that most women will spend their final years on their own as a result of being widowed or divorced or never having married, women need to stretch their nest eggs over increasingly longer retirements.
That would indicate the need to take more risk with their retirement portfolios in an effort to boost returns. Unfortunately, most female investors do the opposite. Almost 69% of women take average or below risk with their investment portfolios while over half of men take average or above average risk when investing, according to the J.P. Morgan study.
It’s time for a reality check. Women need to understand that being too cautious with their investments can be the greatest risk of all, particularly as the recent uptick in inflation underscores the need to take appropriate investment risks in order to protect future buying power.
Speaking of inflation, the Social Security Administration recently announced that benefits will increase by nearly 6% next year, the largest increase in 40 years. While that may be welcome news for retired and disabled workers, their dependents and survivors, it also indicates that inflation could be a bigger threat in years ahead.
Social Security is a critical piece of retirement security, particularly for women, but it was never designed to be the sole source of retirement income. On average, Social Security replaces about 40% of pre-retirement earnings. To have comfortable retirements, most Americans will need other sources of income, such as pensions, savings, and investments.
In preparing for my participation in a recent symposium celebrating the 25th anniversary of the Women’s Institute for a Secure Retirement, I reviewed a 1992 report by the House Select Committee on Aging, entitled “How Well Do Women Fare Under the Nation’s Retirement Policies?” Nearly 30 years later, it seems we are still grappling with the same issues.
“As a reward for raising our children and serving as caregivers for our elders, millions of today’s working women will become destitute in old age as the beginning of the baby boomer generation retires,” the report said. “One of the main problems is that Social Security law was designed to address the needs of a traditional family in the 1930s…[not] the needs and reality of today’s workforce.”
Several lawmakers have proposed creating caregiver credits towards future Social Security retirement benefits to compensate for years out of the workforce due to caregiving duties.
“If we do not act to correct these serious problems soon, the nation, the economy and older women will pay an increasingly greater price in the years to come,” the congressional report said.
What was true in 1992 is even more true today. The future is here, the clock is ticking, and we still need better solutions to help all Americans, particularly women, prepare for a secure retirement.
[Questions about Social Security rules? Find the answers in Mary Beth Franklin’s ebook at Maximizing Social Security Retirement Benefits]
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