Closing The Retirement Gender Gap

Closing The Retirement Gender Gap
Photo by stevepb (Pixabay)

Closing The Retirement Gender Gap

April 21, 2015

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by Jeff Briskin

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Women and men think and act differently about saving for retirement. Fewer women save for retirement, and they don’t save as much. They’re also less interested in investments and more risk-averse. This lack of “retirement readiness” puts many women at risk of financial hardship during their retirement years, especially since most will outlive their spouses.

These are some the key findings of new research recently released by BlackRock Global Investors.

According to the BlackRock Global Investors Pulse Survey, only 53% of women save for retirement on their own, compared to 65% of men. Women’s average retirement account balance – $34,000 – is less than half that of their male counterparts ($76,800), and only 28% of women are willing to take on added investment risk compared to 68% of men, leading to retirement portfolios that are overweighted in cash.

In a recent interview, Hollie Fagan, BlackRock’s Head of RIA business, discussed the reasons this retirement gap exists and the opportunity it presents for advisors to help them close it.

Lifestage events play a significant role. Many women leave full-time careers to raise children, disrupting their participation in an employer’s retirement plan. When they re-enter the workforce, only half of those between the ages of 25-44 take on full-time roles, making it difficult to “catch up” to their retirement-savings goals. Some companies don’t allow part-timers to participate in their plans, leaving IRAs – with their low annual contribution limits – as the main alternatives.

Family dynamics also play a role. Many women of the Baby Boomer generation entrust their husbands or partners with retirement-planning decisions. Many of these women don’t save for retirement on their own or contribute only in small amounts.

Women also tend to be more conservative investors than men. Only 28% are willing to take on added risks to achieve higher returns, compared to 45% of men. As a result, women, on average, allocate more of their assets – 68% —to cash, compared to 59% for men.

This combination of inadequate contributions and risk aversion makes many women vulnerable to financial hardships during retirement. This risk can be magnified if wives don’t play an active role in retirement planning with their husbands. In many situations, husbands calculate their retirement income needs and drawdown periods based on their own life expectancy, rather than the joint expectancy of themselves and their wives. Since women, on average, outlive men by seven years (life expectancy at birth of 79 versus 72), it’s critical for wives to make sure their expected extended lifespans are figured into the equation.

But many aren’t aware that this discrepancy is a major issue.

Fortunately, according to Fagan, BlackRock’s research revealed that Millennial generation women are far more engaged in managing their retirement plans than their parents. Thirty-one percent described themselves as active investors versus 15% of Baby Boomers, and 41% said that they are willing to take on higher risks to achieve higher returns versus 22% for Baby Boomers. Yet, only 36% of Millennial women claimed to enjoy managing their investments, compared to 70% of their male peers.

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  1. Two key reasons that women save less than men are a pay inequality and a shorter time in the workforce because they leave work to raise children. The basics are the same for men and women: start saving/investing early in life and be consistent (save with every paycheck). Taking advantage of a matching 401k plan should be a no brainer. The power of compounding is lost on many people. Also maxing out contributions when possible, eliminating debt, avoiding risks with your nest egg, planning for multiple streams of income once retired (social security, pensions, dividends, part time work, etc.) and making catch up contributions once you reach 50 should all be part of everyone’s plan. And work at staying healthy to reduce illness, injuries and medical costs. I recently found the site Retirement And Good Living which provides information on all these issues as well as many other retirement topics and also has several retirement and health calculators.

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