Closing the Gap: How Women Should Save and Invest for Retirement

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In spite of women’s steadfast march toward equality, what has not changed much is their preparedness for retirement.  According the 18th annual Transamerica Retirement Survey, only 12 percent of American women strongly feel they can retire with a comfortable lifestyle, compared to 24 percent of men.  One in five women state they have less than $10,000 saved for retirement while twice as many men than women have $250,000 or more in their nest egg.

Women face multiple hurdles in retirement planning due to conflicting financial priorities, caregiving and contributing financial support.

Whether societal or by their own internal compasses, women are often expected to be caregivers, yet, less likely to focus on the costs associated with care for themselves.  According to vice president of planning and sales at Northwestern Mutual Rebekah Barsch, “Many times, the caregiving plan for the husband is the wife — so she ends up taking care of him and if he dies or can’t care for her, she’s left without a financial safety net.”

In addition to providing care, women are also more likely provide financial help for their children’s college costs, according to the 2018 Northwestern Mutual C.A.R.E Study.  Chief investment officer of Family Wealth Group Kevin Adkins points out a woman’s savings may fall short later in life with the children she helped through school burdened with her financial shortcomings.  He says, “To use the airline emergency analogy, put the oxygen mask on yourself first, then assist others.”

Women may be behind men when it comes to retirement planning, but, they can reverse the trend.

Fifty-five percent of women polled by Transamerica guessed at needing to have a median amount of $500,000 saved for retirement.  Of the women surveyed, only 7 percent used a retirement calculator to determine how much they needed to have stowed away.  According to president of Senior Planning Advisors and Strategic Investment Advisors Kirk Cassidy, “The average woman who lives until age 89 would need $80,000 a year for retirement, or about $2.4 million in cash flow.”  Healthcare costs are not included in this figure; long term care costs could add up to $100,000 a year to her total living expenses.

The best plan, according to Cassidy is to hope for the best, but, plan for the worst with a definitive savings target in mind.  He says, “The best outcome would be if you leave more money to your kids; the worst is that you become dependent on the kids.”

Retirement calculators can help take the guesswork out of what a women will need when saving money for her retirement.

Certified financial planer and regional director for EP Wealth Advisors Lynn Ballou says, “The challenge is in using the tools correctly.”  Women need to be sure the correct variables are accounted for in their calculations.  Projected Social Security benefits, accurate cost of living assessment in retirement, after tax return on investments, estimated spend down rate for taxable and tax advantaged assets, and how future inflation rates could affect purchasing power are all variables affecting an accurate calculation of cost of living in retirement.

According to Ballou, “A successful retirement is about realistic planning and making necessary course adjustments in time to avoid catastrophe.”

It is recommended women focus on retirement planning sooner rather than later as the future is unpredictable.

Over 50% of the women polled in the Transamerica survey indicated they do not plan to retire at all or retire after age 65.  Their plans may not meet with reality, so, women should be prepared to retire earlier than they had projected.  Certified financial planner and portfolio manager at FBB Capital Partners Jane DeLashmutt O’Mara thinks a woman must take into account how downsizing at her job or a health issue could effect her retirement goals.  “Health is the obvious wild card that none of us is able to plan around.”

By establishing a plan supporting financial independence, a woman will not need to be in the workforce in her later years, according to Barsch.  Working up to a woman’s projected retirement date should be the goal of her fundamental plan, “while continuing to work should be the back up plan.”

Evaluating a woman’s current income and health care requirements, as well as those of her spouse, if married, can help establish a realistic goal in her retirement planning.

Because a woman’s retirement plans can be effected by many variables, it is important to consider everything she will need to be comfortable in her later years.  Two components to consider adding to a woman’s retirement plan are long term care insurance and life insurance.  Long term health care insurance could play a key roll in a woman’s comfort in retirement.  Out of pocket expenses for a home health aid visiting 30 hours a week now average $32,760 per year and may include her caregiver (likely to be one of her children) leaving his or her job for her care.  Assisted living facilities average $47,064 per year, while a semiprivate nursing home costs an average of $91,615 a year.  Unless planned for with insurance, these costs could deplete even a healthy retirement portfolio in very few years.

Even if a woman is behind in her retirement planning, investments offering a guaranteed income, such as annuities, could help her achieve her retirement goal.

A woman’s portfolio allocation should be in line with her retirement age goal; however, a woman should not be alarmed if she is lacking.  Ballou says, “Focus instead on buying a high quality, balanced mix of investments.”  Concentrate on placement in “before-tax” as opposed to “after-tax” accounts to boost efficiency and “never buy in desperation to make up for lost time.”

Certified financial planner and wealth advisor at Tanglewood Total Wealth Management in Houston, Florida Abigail Gunderson recommends clarity when determining how much risk a woman is willing to take.  A 70 percent stock / 30 percent fixed income split is a good idea for women 10 to 30 years away from retirement.  As she considers leaving the workforce, she may consider shifting toward more conservative fixed income holdings.  Gunderson says, “Women who don’t make emotional decisions with their investments will typically experience better returns in the long run if they allow well diversified portfolios to work on their behalf.”

According to the Transamerica survey, women are more likely to want professional retirement planning advice, but, less likely to keep the conversation going with financial advisor.

Katherine Perry, certified financial planner, financial consultant at Fort Pitt Capital Group says, “An advisor can help women create a financial plan, run through retirement projections to create an investment strategy and help keep them on track so they aren’t spending money unnecessarily.”  An advisor can also keep a woman on the right track, suggesting allocation adjustments as she ages.

Women can close the gap in their retirement preparations by creating a retirement plan tailored to their current age and health, keeping a watchful eye on the ever-changing future, and adjusting their investments as their situations change.  A financial advisor’s guidance may prove valuable in helping a woman define her retirement goals and steering her toward a nest egg affording her the retirement she deserves.

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