Yahoo Finance 5 Reasons Women Need to Save More for Retirement Than Men
If you feel like men have an unfair advantage when it comes to retirement, you may be on to something. Financial experts say women have a slew of factors working against them when it comes to saving enough money for retirement.
"We're living longer, spend less time in the workforce and, on top of that, we have a gender pay gap," says Deborah Graver, senior advisor and partner at Signature Financial Planning in Pittsburgh.
Those are just a few of the reasons women may have to work harder at saving for their retirement years. Here's a rundown of the factors that mean women should be putting away more cash as well as three strategies to put more money in the bank.
Women live longer than men. On the face of it, living longer seems like a good thing. However, more years means more time to run out of retirement money. Plus, as Graver notes, "When we're living longer, we're not necessarily living healthier."
According to the Social Security Administration, a woman turning 65 today has an average life expectancy of 86.6 years, which is 2.3 years longer than a man of the same age whose average life expectancy is 84.3 years. That not only translates into 2.3 years more of living expenses, but it could also represent additional medical and long-term care expenses. A 2010 study published in the Journal of the American Geriatrics Society found women made up a higher proportion of nursing home residents, and they typically had longer stays than men.
Women may spend fewer years in the workforce. For many women, raising children or caring for elderly parents means taking time out of the workforce. A 2005 study from Harvard Business School estimated that 43 percent of women with children voluntarily left a job. Among all women surveyed, 44 percent said their decision was spurred by family obligations, such as the need to provide child care or elder care. More recently, a 2014 Pew Research Center analysis determined that 9 percent of highly educated women (defined as those with at least a master's degree) leave the workforce to care for children.
"A lot of times, these are your prime income-earning years," says Keith Klein, certified financial planner and owner of Turning Pointe Wealth Management in Phoenix. Losing those high-paying years could result in lower Social Security payments in retirement.
Taking time out of the workforce could also mean less money put into 401(k) accounts. Graver notes businesses often have vesting periods that require workers to remain employed for a certain number of years or months in order to keep employer contributions to retirement funds. "[Women] may be switching jobs and leaving money on the table," she says.
Women may earn less than men. The reasons behind the gender pay gap are up for debate, but the reality is women earn less, on average, than men. The American Association of University Women, using data from the American Community Survey, found that female full-time employees only earned 79 percent of the income pulled in by men last year.
What's more, the Department of Labor found women in 2013 were almost twice as likely as men to work part time, an arrangement that undoubtedly leads to lower incomes. Regardless of the reason why, lower incomes mean less money for retirement accounts and smaller Social Security payments in retirement.
Women tend to be more conservative with their money. Plenty of studies have found that women are more risk averse than men. In other words, they are less likely to put their money in what could be considered risky investments. Graver says this means some women might be inclined to skip stock market funds and instead use investment tools such as CDs, which don't lose money but also don't gain much either.
Fortunately, when women do invest in market-based funds such as 401(k)s and IRAs, their risk aversion may have a benefit. A 2001 study published in The Quarterly Journal of Economics found that men's aggressive investing style meant they initiated 45 percent more trades than women, a strategy that resulted in lowered returns. A more recent analysis of data from brokerage firm Fidelity found that women and men had almost equal returns over the past decade.
Women often end up being caregivers. A final reason women may need to save more for retirement is they may be likely to use their money for expenses other than retirement. "As women age, the biggest trouble I see is [they] care for everyone else except themselves," Klein says.
The Family Caregiver Alliance estimates women account for as many as 68 percent of the nation's family and informal caregivers. Even women who aren't acting as caregivers may feel obligated to help adult children or others.
"Competing financial responsibilities often complicate retirement planning," says Douglas Dubitsky, vice president of product management for Guardian Retirement Solutions. Money that should be used for retirement may instead get eaten up as a loan to an adult child or used to pay for the care of an elderly relative.
3 Ways Women Can Get More Money in the Bank
The above reasons can place women at a disadvantage when it comes to having enough money for retirement. The solution is for women to simply save more. "Hands down, women need to start saving earlier and take advantage of the power of compounding assets," Dubitsky says.
However, if time is not on your side and you're closer to retirement age than college age, these suggestions may help.
1. Start with a budget. The most important step is to have a plan in place for your money. Once you have a budget, you can identify where funds can be diverted for retirement. Klein says the key to doing so may be to adjust how you approach the issue. While his clients often agree they could get by on 80 percent of their income, they balk at the idea of cutting 20 percent of their expenses, even though both scenarios achieve the same goal. "It's all a matter of your point of reference in how you ask the question," he says.
2. Get good advice. Graver shares a story of a divorced client whose ex-husband told her she wasn't eligible for any of his Social Security benefits even though she was. "He lied to her basically," Graves says. The moral of the story is to not believe everything you hear or read about finances. Follow up with a professional to be sure you've exhausted all your options.
3. Consider working longer. Although it may not be some people's first choice, working longer is one way to make up for meager retirement savings. "More older workers are staying employed -- some by choice, some by necessity," Dubitsky says. "The longer you have income coming in, the greater your financial resources." As a bonus, you may be able to delay the start of Social Security which could lead to greater payments later.
Trying to save more money when you earn less than your male co-workers can be difficult, but it's not impossible. "It's what you do with that money that matters," Graver says. "It's not about keeping up with the Joneses. It's about moving yourself forward."
More From US News & World Report
