Women and retirement preparedness

As International Women's Day approaches this Sunday, female investors continue to face challenges related to longevity and lower lifetime earnings

4 MINS

The theme of International Women’s Day Sunday is “an equal world is an enabled world.” Unfortunately, when it comes to retirement preparedness, many women are far from equal with their male counterparts. And women continue to be underrepresented in financial services profession.

Women face dual challenges in terms of their retirement security: longevity and wealth inequality.

Women tend to live longer in retirement than men and often do so with less savings given their lower average lifetime earnings and their tendency to interrupt their careers for caregiving responsibilities. Women are also more likely to live alone in old age due to widowhood,  divorce or never having been married.

Consequently, women rely more heavily on Social Security than men. They represent more than half of all Social Security beneficiaries at age 62 and older, and two-thirds of all beneficiaries over the age of 85.

In its new Women and Investing special report, Morningstar compiled 75 sobering statistics about the state of women’s retirement preparedness.

The Morningstar report noted that the estimated net lifetime earnings of a woman with a bachelor’s degree is less than two-thirds of the net lifetime earnings of a man with a similar degree. On average, women’s earnings peak at around $66,700 per year at age 44. Men’s earnings tend to peak in their mid-50s, surpassing $100,000.

More than 40% of mothers said they had reduced their work hours to care for a child or family member, compared to 28% of fathers, according to Morningstar. More than a quarter of mothers said they quit their job to care for a child or family members, compared to just 10% of fathers. And more than 80% of the care delivered to older adults is provided by family members or friend. Three-quarters of long-term caregivers are females.

Less time in the workforce means less time to save for retirement. And women’s investment decisions during their working years often determine their future account balances.

The most common and potentially costly mistake women make with money is that they fail to invest enough of it, often favoring cash over equities, according to Wall Street veteran Sallie Krawcheck.

“For some women, this gender investment gap costs them more than the gender pay gap does,” Ms. Krawcheck said at the Women Adviser Summit in New York City last November.

In general, women earn 80 cents for each dollar that a man earns. That’s an income gap. But when home equity and financial assets are added to the picture, women on average have just 32 cents of net worth compared to men. That’s a wealth chasm.

Although more than two-thirds of women save for retirement through a workplace plan or IRA, their participation pales in comparison to the 81% of men who contribute to retirement accounts. Men tend to put saving for retirement at the top of their financial priority list, while women ran it in fifth place, following meeting daily living expenses, paying off debts, covering housing costs and saving for general purposes.

Only 39% of women say they are confident they’ll have enough money to last 25 years into retirement, compared to 54% of men. As a result, 55% of women say they expect to retire after age 65, and 84% of those women say they are delaying retirement for financial reasons.

Working longer can go a long way toward improving retirement security, but sometimes continuing to work is not possible as a result of unanticipated layoffs, health issues or caregiving responsibilities.

That’s why women should focus on funding their retirement savings early in their careers, taking advantage of employer matching contributions and the magic of compounding. If they need to interrupt their careers, married women are eligible to fund a spousal IRA, assuming their mate has enough earnings to cover both of their contributions. And if they return to work later, women should consider making catch-up contributions at age 50 and older.

A recent report from the Center on Retirement Research found many married women in two-income households are at more risk of retirement insecurity than other women. The main reason is that two-income households tend to make more money but save less.

Finally, while women have made significant progress in entering the workforce over the past half century, boosting their earning power higher than ever before, higher income does not guarantee financial confidence. A new report,  “Designing Your Economic Masterpiece in a Man’s World,” by Meredith Moore, CEO of Artisan Financial Strategies, underscores that a man is not a substitute for a financial plan.

“Simply becoming more engaged in the details of your own financial world is the first and most important thing you can do to prevent personal financial crisis, reduce financial risk and enhance long-term financial security,” Ms. Moore said.

InvestmentNews remains at the forefront of championing financial equality for women and will host its fifth annual Women to Watch awards luncheon on March 12 in New York City honoring outstanding women in the financial advice industry. Separately, IN will launch its six-city Women Adviser Summit 2020 series in Huntington Beach, Calif., on March 18.

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