Retirement Planning for Women

When it comes to retirement saving, many women lag behind many men. Historically, that has been the case. The 2015 edition of Financial Finesse’s annual survey, The Gender Gap in Financial Literacy, offers more evidence of the problem – along with a few encouraging signs that women may be catching up. (Financial Finesse is a financial education provider for more than 600 large U.S. companies sponsoring retirement plans.)

Deep in the report, some disturbing statistics emerge. They concern the pace of retirement saving in mid-career. Using data from Vanguard and the Employee Benefit Research Institute, Financial Finesse found that the median IRA and workplace retirement plan savings balance for a 45-year-old woman was $43,446. For a 45-year-old man, it was $63,875.

Obviously, you cannot retire on that. So Financial Finesse then gauged the additional amount of savings that the median 45-year-old male employee and the median 45-year-old female employee would need to replace 70% of pre-retirement income and pay for estimated medical expenses (long term care not included.) It found a 26% disparity: the median male employee saver needed $212,256 to reach that goal, while the median female employee needed $268,404.

A gap in some aspects of financial literacy was also notable. Just 67% of pre-retiree women responded that they had a general knowledge of investment classes compared to 84% of their male peers. While 78% of men surveyed said that they had an emergency fund, merely 67% of women did. Just 34% of women were confident about the way their portfolios were allocated, versus 48% of men.

How many women are able to work full-time at age 65? Some women hope to keep working into their seventies, but that may not happen. Earlier in this decade, MetLife studied “leading edge” baby boomers born in 1946 as they turned 66 in 2012. It found that 52% were already retired, and 43% had claimed Social Security earlier than they anticipated.

How can women plan to address this? Here are a few positive steps you can take …

Find out where you stand in terms of savings now. A simple retirement planning calculator (there are many available online) can help you see how much more you need to save, per year and over the course of your career.

Save enough to get the match. If your employer will match a percentage of your retirement plan contributions per paycheck, strive to contribute enough to your plan each paycheck so that the match occurs.

Ask about automatic escalation. Some workplace retirement plans have this option, through which you can boost your retirement contributions by 1% a year. This is a nice “autopilot” way to promote larger retirement nest eggs.

Ask for a raise. You probably should be paid more than you currently are. A higher salary means more money to put toward your savings effort.

Cut credit card debt. Reduce it and you give yourself more money to save.

Make tax efficiency one of your goals. Consult a financial professional about this, for there are potential advantages to having your money in taxable, tax-deferred, and tax-exempt accounts. For example, when you contribute to a traditional IRA or a typical employer-sponsored retirement plan, you make tax-deferred contributions. This lowers your taxable income today, although the distributions from those accounts will be taxable in retirement. You defer after-tax dollars into Roth IRAs; those dollars are taxable today, but you will eventually get tax-free growth and tax-free withdrawals if you follow IRS rules. Taxable investment accounts may seem less preferable, but they too can potentially help you pursue financial goals.⁴  

Determine an appropriate “glide path.” Many financial professionals caution retirement savers to gradually reduce the risk in their portfolio as they age – to “glide” from a portfolio mainly invested in equities to one less invested in them. (Some retirement plan accounts will actually adjust your investment mix for you as you age.) Glide paths are different for everyone, however. If you really need to accelerate your retirement savings effort, then you may need to accept more risk in your portfolio in exchange for the possibility of greater returns. (Again, this is a good topic for a conversation with a financial professional.)      

In some ways, women are narrowing the retirement saving gender gap. Financial Finesse found that 4.2% more women had adopted an investment strategy in the 2015 survey compared to the 2012 edition, and 2% more had done a basic retirement savings projection.  In passing, it also noted that the percentage of women who said they were on track to meet their retirement savings goal rose 4.2% from 2012 to 2014.²