The retirement gender gap is alive and well, according to the 18th annual Transamerica Retirement Survey.
Just 12 percent of American women are very confident that they can fully retire with a comfortable lifestyle, compared to 24 percent of men. Men were nearly twice as likely as women to have $250,000 or more saved for retirement, with one in five women reporting savings of less than $10,000.
Narrowing the savings gap is often difficult for women because of competing financial priorities. The 2018 Northwestern Mutual C.A.R.E. Study found that women are more likely than men to provide financial support with caregiving. They’re also less likely to address the costs of caregiving in their financial plan.
[See: 11 Steps to Make a Million With Your 401(k).]
This is especially problematic for couples, says Rebekah Barsch, vice president of planning and sales at Northwestern Mutual in Milwaukee. “Many times, the caregiving plan for the husband is the wife — so she ends up taking care of him and if he dies or can’t care for her, she’s left without a financial safety net.”
At the other end of the spectrum, women may feel pressure to help children with college costs, putting retirement on the back burner. Kevin Adkins, chief investment officer of Family Wealth Group in Lexington, Kentucky, says this may mean those same children will bear the burden of helping their mothers financially later in life because of a retirement savings shortfall. “To use the airline emergency analogy, put the oxygen mask on yourself first, then assist others,” Adkins says.
But just because women lag men in retirement savings doesn’t mean they can’t gain ground.
Don’t play the guessing game. According to the Transamerica survey, only 7 percent of women use a retirement calculator to determine how much they need to save. The median amount women estimated they would need was $500,000, but 55 percent of women surveyed chose this number by guessing.
That amount is unrealistic for most women, says Kirk Cassidy, president of Senior Planning Advisors and Strategic Investment Advisors in Farmington Hills, Michigan. “Women have the potential to live much longer than men,” Cassidy says. “The average woman who lives until age 89 would need $80,000 a year for retirement, or about $2.4 million in cash flow.” That figure doesn’t include health care costs, with long-term care costs alone adding upwards of $100,000 per year to the total sum.
Cassidy says women need to plan for the worst and hope for the best, with a specific savings target in sight. “The best outcome would be if you leave more money to your kids; the worst is that you become dependent on the kids.”
Lynn Ballou, certified financial planner and regional director for EP Wealth Advisors in Lafayette, California, says retirement calculators can help, provided the right variables are used in those calculations. “The challenge is using the tools correctly,” Ballou says.
That includes assessing whether your estimated cost of living in retirement is accurate, how future inflation rates may affect your purchasing power, the after-tax return on your investments, your projected Social Security benefits and your estimated spend-down rate for both your taxable and tax-advantaged assets. “A successful retirement is about realistic planning and making necessary course adjustments in time to avoid catastrophe,” Ballou says.
[See: 8 Ways to Buffer Your Portfolio From a Market Slide.]
Rethink your goals. More than half of the women in the Transamerica survey said they planned to retire after age 65, or never retire at all. That, however, isn’t always possible, and women should be prepared to retire earlier than anticipated.
Jane DeLashmutt O’Mara, certified financial planner and portfolio manager at FBB Capital Partners in Bethesda, Maryland, says women investors must consider how a health issue or their employer downsizing may affect their retirement plans. “Health is the obvious wild card that none of us is able to plan around.” Starting early with saving is one of the most effective steps you can take to set yourself up for retirement success.
Barsch says women should be creating a plan that allows them to be financially independent, so they don’t need to continue working in their later years. Working until your desired retirement date should be the goal of your primary plan, “while continuing to work should be the back-up plan,” she says.
Reviewing your immediate and future income and health care needs, as well as those of a spouse if you’re married, can help shape this primary plan. Some elements to consider adding include life insurance, long-term care insurance and guaranteed income products, such as annuities.
Your portfolio allocation should reflect your time horizon for retiring, but don’t panic if you’re behind. “Focus instead on buying a high-quality, balanced mix of investments,” Ballou says. Pay attention to placement in pre-tax versus after-tax accounts to maximize efficiency and “never buy in desperation to try to make up for lost time.”
Abigail Gunderson, certified financial planner and wealth advisor at Tanglewood Total Wealth Management in Houston, says be clear about how much risk you’re willing to take. For women who are 10 to 30 years away from retirement, she recommends a 70/30 split between stocks and fixed income. As retirement nears, revisit that allocation and begin shifting to more conservative percentages.
And don’t make spur-of-the-moment decisions. “Women who don’t make emotional decisions with their investments will typically experience better returns in the long run if they allow well-diversified portfolios to work on their behalf,” Gunderson says.
Start the conversation. The Transamerica survey found that while women are more likely than men to want professional advice about retirement investing, they’re less likely to have an ongoing dialogue about it with an advisor.
If you have reservations about consulting an advisor, consider the value that professional advice could add to your retirement strategy. “An advisor can help women create a financial plan, run through retirement projections to create an investment strategy and help keep them on track so they aren’t spending money unnecessarily,” says Katharine Perry, certified financial planner, financial consultant at Fort Pitt Capital Group in Pittsburgh. Advisors can also help women manage their risk tolerance as their time horizon shrinks.
[See: 13 Tips for Singles Nearing Retirement.]
“It’s always a good idea to have a guide who [knows] how to craft a retirement paycheck or put someone on a path to reach their financial goals while protecting against unexpected risk,” Barsch says. “All of that has to come together in a comprehensive plan to ensure that you’re living with financial security.”
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Women Can Catch Up to Men’s Retirement Savings originally appeared on usnews.com
