Even before COVID-19 and the ensuing recession, women faced unique challenges in savings and retirement planning. From gender-based wage and savings gaps to balancing work and family responsibilities to having a longer life expectancy. While a financial advisor can’t single-handedly reverse economic and social disruptions emerging from the pandemic, prudent advice can help you navigate life’s challenges and the next crisis du jour. Having greater confidence in money matters and increasing retirement savings can go a long way toward reaching financial security. I asked Kirstin Griffin of Sage Financial Advisors to join me in discussing these key issues.
Key Challenges – Women have a disadvantage with retirement savings
- Retirement income gap: According to the National Institute for Retirement Security (NIRS), women age 65 and older have a median household retirement income of $47,200 or 83% of what men have on average with $57,100. Retirement income includes Social Security, pensions, and investment income.
- Career earnings gap: Women earn about 82% of men across most occupations according to a 2020 Bureau of Labor Statistics survey.
- 401(k) savings gap: In a T. Rowe Price survey, women contributed an average of 6% to 401(k) plans (Boomers, Gen X and Millennials) compared to 8% or 10% for men. Median 401(k) balances for 2017-2019 were about $46,200 for women and $83,000 for men.
- Longevity: Women tend to live longer. Life expectancy for women may reach 87.3 years compared to 83.9 years for men by 2060 per the U.S. Census Bureau. Currently, the gender gap in the US is nearly 4 million more women than men in the 65 to 84 age range and nearly twice as many women as men age 85 and older.
- Caring for others: Women are more likely to leave the workplace than men for childcare and caregiving. Female caregivers under age 50 have about 30% less retirement wealth than non-caregivers (compared to 14% less for males), and female caregivers over 50 have 58% less retirement wealth (compared to 48% for men).
- Life transitions: Women aged 80 and above are more likely to experience income challenges as widows or due to healthcare costs. Divorce and its timing can also have significant impacts.
Planning Opportunities – Overcoming gender pay gaps, increasing retirement savings and being more comfortable in financial matters can play important roles
- Negotiate compensation: Value your work enough to advocate for it in a negotiation.
- Budgeting and reducing debt: Work in tandem to create more savings and make the money last longer.
- Create an emergency fund: It is recommended you have three to six months’ worth of expenses saved.
- Prepare for life’s changes: Should childcare and caregiving be shared responsibilities? Can you work part-time or consult, continue to network and keep skills sharp? What will it take to be more knowledgeable and comfortable with financial matters? For example, T. Rowe Price estimates that 33% of women will be widowed or divorced within the first 5 or 10 years of retirement versus 8% of men.
Types of Advisors – How much personal interaction do you desire?
- Robo advisors: Digital services are available online to help create automated portfolios based on your stated preferences and needs. They’re better for people who prefer limited human interaction and the services are generally cheaper.
- Financial advisors: Services can be more comprehensive and personal. Few planning issues can be solved by an algorithm – e.g. how do I decide when and where to draw from during retirement, should I remarry and how should I allocate my estate? Advisors come in all styles, colors and sizes – find the one that best fits you. Some provide a combination of personal and digital services. Ask your accountant or attorney or go online (e.g. Letsmakeaplan.org and Napfa.org).
These issues are real. Living longer, having less income or retirement assets or figuring out who’s going to care for you can have a major impact on your quality of life. It’s seldom too early or late to plan. May you have sage advice and secure your future wisely.