Generally, both men and women have the same long term financial goal: to live comfortably in retirement. However, many studies show that women may have more hurdles to achieving this goal than men. For example, women typically have less lifetime earnings, and thus, less retirement savings than men. Women also tend to invest more conservatively, sometimes making their rates of return on investments lower than those of aggressive investors. To complicate matters further, women run a greater risk of outliving their savings due to longer lifespans and more years spent in retirement.
While certainly not all women will face these challenges, for those that do, there are steps that may be taken today to overcome these obstacles and plan for retirement tomorrow.
Women earn less than men and have less lifetime savings
Women have made significant strides towards equality. However, a significant earnings gap still exists between the sexes.
• In 2016, women who were full-time wage and salary workers had median usual weekly earnings of $749. On average in 2016, women made about 82% of the median earnings of male full-time and salary workers ($915)3.
• Women are more likely than men to work part-time. Women who worked part-time made up 25% of all female wage and salary workers in 2016. In contrast, 12% of men in wage and salary jobs worked part-time3.
Lesser earnings and fewer years of full time work outside the home often mean fewer dollars and less opportunity to contribute towards a retirement plan. Those who work part-time are often excluded from their employer’s retirement plans. What’s more, women are more likely than men to leave the workforce to take care of children. This interruption can result in less money saved for retirement.
But don’t despair. There are some things that can be done today to increase retirement savings. Be a little stingy; make a serious effort to take control of retirement planning. If eligible to participate in an employer plan, contribute enough to at least take advantage of any matching contributions. Is income generated from self-employment? For example, selling real estate, beauty products, or working as an independent contractor? If yes, did you know an investor is able to open their very own retirement plan, such as an Individual 401(k), a SEP IRA, or SIMPLE IRA?
Even if an investor doesn’t work outside the home, if married and filing taxes jointly, a contribution can be made to a Traditional or Roth IRA. These are known as spousal contributions and an investor is eligible to contribute up to $5,500. If age 50 or older, an investor can save more by taking advantage of a $1,000 catch-up provision, raising the maximum contribution limit to $6,500 per year.
If married and a partner will be entitled to a pension, take advantage of joint and survivor rules. If elected, these provisions ensure that a surviving spouse will continue to receive pension payments in the event the former working spouse dies first. If divorced, a spouse may be entitled to a portion of the ex-spouse’s retirement benefit if the court issues a Qualified Domestic Relations Order (QDRO). Even if divorced, but were married for at least ten years, an investor may qualify for Social Security benefits based on the ex-spouse’s work history. This benefit may result in a larger payout, or could entitle a spouse to benefits for which they may not otherwise qualify, but will not affect the ex-spouse’s benefits.
Women live longer and invest more conservatively then men
On average, a female retiring at age 65 can expect to live another 21 years, 3 years longer than a male retiring at the same age4. Why is this problematic? Since women tend to live more years in retirement, there is a greater chance of exhausting savings. Another challenge is that women tend to invest more conservatively then men. Typically, more conservative investments provide lower risk, but they can also provide less return. This tradeoff could lead to having less money in retirement.
Certainly for some, conservative investing is appropriate, but it’s disadvantageous for anyone to adopt this or any other strategy if uninformed of alternatives. So learn about different investment options, such as stocks, bonds, mutual funds, ETFs and CDs to determine which may be aligned with investment objectives, risk tolerance and time horizon. A good rule of thumb is to help mitigate exposure to risk by combining a variety of investments. At E*TRADE, there are online tools and education for self-directed investors. For those looking for one-on-one guidance, E*TRADE Financial Consultants5, located in 30 branches, can help an investor plan for retirement in-person or by phone.
When preparing for retirement, resist the urge to use a retirement account as a source of emergency funds. Money for retirement should not be used for non-retirement purposes unless it’s completely unavoidable.
Be prepared for the unexpected. All investors should know where their families’ financial information, such as bank and retirement statements, will or trust papers, and insurance policies are located. With young children, is there adequate life insurance coverage in case of a death to make up any lost income? Has the beneficiary information on accounts been reviewed and updated due to any recent life events?
Check titling on property. Whose name is on the house and on the savings or checking accounts? If a spouse dies, can the funds be accessed to take care of any immediate needs?
If an investor is in or near retirement, they need to make sure they have adequate health care coverage. Check out the benefits of Medicare and any employer-sponsored health plans to ensure coverage. If there is not enough savings, think about retiring later or consider part-time work. Delay taking Social Security to gain higher benefits. Consider downsizing the home, or moving to a state with no state income tax.
Finally, keep an eye on how investments are doing and whether changes are needed. The financial world and an investor’s life will be full of changes even in retirement, so make sure the financial plan continues to reflect appropriate goals and circumstances. Check investment performance at least quarterly and consider rebalancing the portfolio every six months to one year. Lastly, remember to seek help. Call us at 1-877-800-1208.
3U.S. Bureau of Labor Statistics, Highlights of Women’s Earnings in 2016, August 2017.
4U.S. Department of Labor, Women and Retirement Savings, September 2017.
5Financial Consultants are dually registered with E*TRADE Securities, a registered broker-dealer, and E*TRADE Capital Management, LLC, a Registered Investment Adviser, and may offer services that are either one-time commission based or ongoing fee-based advisory services.