When it comes to being prepared for retirement, women are in worse financial shape than men on nearly every important metric.
New figures from the Office for National Statistics show that while women are catching up, there is still a gender gap when it comes to pension savings, particularly in the private sector. Indeed, new research by Columbia Threadneedle found just 29% of working women hold investments, 13% of homemakers and 10% of unemployed women. Just one in 20 women regularly uses a financial adviser, compared with almost one in 10 men.
The reasons for this disparity are manifold, but a few factors loom large. Women have lower lifetime earnings than their male counterparts, due to both wage inequality and the fact that women are more likely to stop working or maintain a reduced schedule to devote time to caregiving for children, elderly parents, or both. Lower lifetime earnings translate into fewer opportunities to fund retirement accounts.
And women must stretch those smaller average balances over a longer time frame in retirement, as 65-year-old women outlive their male counterparts by two years, on average.
There’s no easy fix for the problem, but women should consider the following steps to help stave off a shortfall.
Maximise Contributions Before, During and After Work Disruptions
Much of the gender gap in lifetime earnings, and in turn retirement savings, is down to women reducing their paid work schedules or quitting work altogether to devote time to unpaid caregiving for children or elderly parents. Women are much more likely than men to cut back on paid work or quit altogether to shoulder caregiving responsibilities for children or other family members.
Those life decisions are about more than money, and women don’t always have complete control over their employers or when their caregiving responsibilities will begin or end. But to the extent that it is possible, women who anticipate that their work trajectories could be affected by caregiving should prioritise employers with family-friendly policies such as paid parental leave and flexible work hours.
The data also show that women’s earnings tend to peak earlier than men’s, no doubt in part because of caregiving responsibilities. That accentuates the merits for women of maximising contributions in the early years of employment, when they can best benefit from compounding, and taking maximum advantage of retirement savings opportunities in those early-to-peak earnings years.
Get Off the Sidelines
Many studies suggest that women invest more conservatively than men, trade less, are more patient, or are more goals-oriented. But other research indicates that once you control for income, women behave similarly to men when investing.
A few findings are consistent, though. One is that women tend to be more reticent than men in getting money invested. As Sallie Krawcheck, co-founder of the Ellevest investing service for women, put it: “Our rival is really cash - that's our biggest competition. It's cash and inertia.” That tendency, combined with the fact that women live longer than men, on average, means that women are more likely to have a shortfall in retirement.
But women are also more likely to use multi-manager and lifestyle funds, which automatically decide their asset allocation for them. Automating investments into an age- and situation-appropriate investment mix such as a target-date fund helps address these tendencies toward caution and cash. Using a multi-asset product takes the guesswork out of how to invest the funds.
Work Longer
Many factors affect how long we’ll work including lifestyle, health and caregiving obligations, and many of these are out of our control. Research from Morningstar Investment Management head of retirement research David Blanchett indicates that retirees who expect to work longer i.e. past the traditional retirement age of 65, for example, are often unable to do so.
Our retirement dates are less in our control than we might like to believe. That said, the financial (and possibly other) benefits of working longer are undeniable: additional pension contributions, delayed portfolio withdrawals, and a shorter drawdown period can all help bolster the viability of a retirement plan.
The benefits of delaying retirement are especially great for women, in that interrupted work trajectories and longer life expectancies compound the stresses placed on retirement assets. For women hurtling toward retirement shortfalls, delaying retirement will be the single-most financially impactful decision they can make. That argues for maintaining work skills through investments in continuing education, being mindful of the incidence of ageism and staying alert to combat it, and making investments in your physical health.
It’s also worth noting, however, that “working longer” doesn’t necessarily mean sticking it out in a job that makes you miserable.
Plan for Healthcare Costs
Because of their longer life expectancies, women have higher lifetime healthcare outlays than men and a greater need for paid long-term care. Women are often the caregivers for their spouses; and when their spouses die before them, they require paid long-term care at a greater rate.
That accentuates the virtue of maximising retirement savings, of course, but women can take additional steps to ensure that high healthcare and long-term-care costs don’t imperil the sustainability of their retirement plans.
Health savings accounts can be valuable as a long-term investment vehicle for women who would like to raise assets for their inevitable healthcare outlays, while critical illness insurance policies can provide peace of mind.
