Women lag behind men in retirement savings—here are 3 things they can do to catch up
By: Alicia Adamczyk
November 18th, 2019
Women are better educated and holding more high-power jobs than ever, and yet still lag behind men when it comes to saving and investing for retirement, according to 19 Facts About Women’s Retirement Outlook, a report by the Transamerica Center for Retirement Studies. The median household retirement savings for women is just $23,000, compared to $76,000 among men, and almost one-third of women say they have saved less than $10,000 for retirement — or nothing at all.
The report, based on TCRS’s s 19th Annual Retirement Survey of Workers, which surveyed over 3,000 female workers, notes that women face many obstacles to saving and investing that their male coworkers may not: There is a persistent wage gap between men and women, and women leave the workforce more often than men to act as a caregiver. They also tend to live longer, meaning they actually need to save more than men do.
Just 12% of women are “very confident” in their ability to retire comfortably, compared to 23% of men. One reason for that, according to the report, is that 65% of women say paying off some form of debt is a financial priority, while just 49% cite saving for retirement as a priority.
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Another factor: 30% of women are not offered any retirement benefits at work, compared to 21% of men, partly because women are more likely to work part-time.
Employees are 15 times more likely to save for retirement if offered a workplace plan, according to Kevin Cox, head of government savings at Ascensus, an independent retirement savings provider, putting women at a distinct disadvantage if they are not even offered one.
Compounding that, the report notes, women have a perceived lack of knowledge about investing and savings strategies.
Women may not be able to surpass systemic hurdles like the wage gap through sheer willpower, but there are a few things they can do to improve their finances. For one, there’s no secret strategy or arcane knowledge needed to invest. Knowing the basics — to invest consistently in low-cost funds that cover an array of companies and sectors, for a long time — will suffice for most retirement investors, particularly those just starting off who have a few decades until retirement. Here are three other steps the authors of TCRS’s report suggest.
1. Learn the lingo
The authors suggest that women get more intimately involved in their financial lives. Learning about the different types of retirement accounts (more on that later) and deciding their own risk tolerance and asset allocation are two ways that they can become more comfortable investing, and take control of their financial lives.
Risk tolerance simply means how much stock market turbulence you can stomach, and goes hand-in-hand with asset allocation, or the mix of your portfolio’s stocks, bonds and other investments. If you’re okay with your investments changing drastically in value in a short amount of time, knowing that historically, the stock market has increased, then you have a high risk tolerance (that said, past performance doesn’t guarantee future gains) and can keep most of your portfolio in stocks.
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On the other hand, you might be more conservative and want to keep, say, 60% in stocks and 40% in something safer, like bonds, to temper any wild fluctuations. This is totally dependent on your own preferences, though a financial advisor can help you determine the right mix. If you have a workplace retirement account or IRA, check to see if your account provider offers free phone or in-person advice.
2. Open an IRA
If you’re not offered a workplace retirement plan like a 401(k) or 403(b), you can open an individual retirement account at a bank or brokerage firm, like Fidelity or Vanguard.
There are two types of IRAs, a traditional account and a Roth, and they offer different tax advantages. Investors contribute pre-tax money to a traditional IRA, giving them a tax break now. When the money is withdrawn in retirement, it is taxed then. A Roth, on the other hand, is funded with money that’s already been taxed. Assuming you meet the withdrawal requirements, your contributions and investment earnings aren’t taxed when you take it out in retirement.
Typically, Roth IRAs are recommended to those who are just starting their careers, so that investors can lock in their current low tax rate (they also have income limits, so super high earners cannot contribute to them outright). But there are a range of factors to consider when deciding between the two accounts. One thing experts can agree on: Opening an account, no matter if it’s a traditional IRA or a Roth, is better than waffling between the two and putting off investing altogether.
IRAs have a contribution limit of $6,000 for 2019 and 2020 (and $7,000 for those over 50).
3. Talk to family and friends
Just 14% of women “frequently discuss saving, investing and planning for retirement with family and friends,” and 32% report never talking about money, which can put them at a disadvantage, per the report.
“Knowledge is power and people tend to feel a huge sense of relief from discussing their situation, and possibly fears, with regard to money,” Greg Heller, founder and CEO of HCR Wealth Advisors in Los Angeles, said. “This, in turn, allows them to make better decisions, avoid critical mistakes, set attainable goals and demystify the subject of money.”
One way to do this is through a money circle, Stacy Francis, president and CEO of Francis Financial, told CNBC, during which friends gather to talk about money over drinks and dinner in a low-stakes environment.
To have a successful event, make sure everyone knows the circle is a judgement-free zone, and only invite people who will be comfortable talking to each other.
“We don’t necessarily talk about numbers,” Francis said. “We talk about our relationship with money, we learn from each other.”