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Saving for retirement is one of the biggest financial challenges that most of us will ever face. Retirement is where all the investing bugaboos that often plague women-a lack of confidence, a strategy that's too conservative, and if married, a tendency to rely on a husband to take care of things-come home to roost. At the same time, women have lots of things working in their favor. Realistically, the biggest pot of money many women will control is their retirement assets, the fruits of their financially productive years. Even women who don't work outside the home can have retirement funds of their own, and married women are entitled to a share of their husbands'. And women have a great track record as long-term investors. All that adds up to a golden opportunity for women to build security for their golden years.
WHERE DO WOMEN STAND?
Although men and women have the same financial opportunities (and risks), the same vehicles for saving, investing, and borrowing, and are subject to the same rules, their circumstances and choices can be very different. This difference is particularly striking when it comes to preparing for retirement. Let's consider a few pertinent statistics and survey results:
- Less than half of all total wage and salary workers in the U.S. participate in a pension plan at work, and the proportion is smaller for women than for men.
- Because they are more likely to move into and out of the labor force, women are less likely to be entitled to the full benefit of an employer's pension or profit-sharing plan. They are slightly more likely than men to receive pre-retirement distributions when they leave an employer, and to receive them at younger ages. Yet only one-third of all of their lump-sum distributions (amounting to about two-thirds of dollars received) are rolled over into another tax-advantaged savings vehicle when a worker changes jobs.
- Women tend to save less of their rollover dollars than do men. Women use 401(k) loans more than men do to get out of debt and, if they've got them, pay for their kids' education.
- On average, women in the U.S. live about 5 1/2 years longer than men, reaching nearly 79 1/2 versus nearly 74 for men. But once men and women reach age 65, women can expect to live another 20 years and men just another 18 years.
- In 2005, men age 65 and over had an average income of about $30,000 while women averaged about half that income.
So let's sum up: Women will probably have to provide for themselves financially for more years of retirement than men will, and for many of those years women are likely to be on their own. Yet women tend to earn less than men and participate in the work force less steadily; thus they lose income and job seniority, and are less likely than men to fully participate in a pension or profit-sharing plan. All of those circumstances act as a drag on women's retirement assets. When women do build up funds, they tend to borrow against their balances or tap them when they switch jobs or need money. It's no wonder that across the board women have less confidence than men in their ability to retire comfortably, and have done less than men to prepare for retirement. For instance, 72% of the men interviewed in the 2005 Retirement Confidence Survey (sponsored by the Employee Benefit Research Institute and the American Savings Education Council) said they had saved for retirement, versus 66% of women; 45% of men had calculated how much money they would need in retirement, versus 40% of women; and 26% of men were very confident that their retirement savings would last throughout their retirement, versus 20% of women.
But there's no point in feeling sorry for ourselves. Now that we know what we're up against, there's plenty we can do about it-and we are already working on the problem. The wage gap is narrowing. Women are more likely than in the past to be employed, to have access to a pension plan, and to be saving for retirement. And younger women are investing less conservatively than women have traditionally done. Remember this mantra and chant it often: Save early, save regularly, save aggressively. Start small, and think big. And if you haven't begun yet, no matter what your age, start now. It's never too late.
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