Michelle R. Santiago
Updated: May 13, 2019
How To
Navigate the retirement gender gap: Considerations for women
By Michelle R. Santiago and Molly C. Reinfried
While retirement is a major life transition for anyone, women face some unique challenges, starting with the retirement gender gap, and continuing through aspects of the retirement planning process, from budgeting to investment strategy, health care and insurance needs. Given these differences, it is especially important for women to be informed and have a plan in place.
Molly C. Reinfried
The retirement gender gap
The retirement gender gap is a disparity in retirement savings and planning that can leave women at a disadvantage as retirement approaches. This phenomenon is primarily due to women’s longer life expectancy (80.1 years versus 74.8 for men), combined with lower lifetime earnings. It’s often exacerbated by a lack of confidence and expertise in budgeting and investing that results in more conservative approaches.
Since 90% of women will end up managing their finances on their own at some point in their lives, it is critical that they are aware of the retirement gap, take an inventory of their whole financial situation and actively develop a plan to achieve retirement goals.
Women are more likely than men to take on the responsibilities of caring for children and elders. This often means women work part-time or leave the workforce temporarily or permanently. This leaves women with fewer resources to save and they are also less likely to save than men are.
Seeing the whole picture
In many instances, women manage the household cash flow but may not be the income earner. So as they approach retirement, they may not be aware of all the moving pieces, such as retirement assets, portfolio allocations, Social Security benefits and insurance.
Since 90% of women will end up managing their finances on their own at some point in their lives, it is critical that they are aware of the retirement gap, take an inventory of their whole financial situation and actively develop a plan to achieve retirement goals.
Budgeting considerations
For many, the greatest risk to a financial plan is one within their control — spending. For women, this is an even greater risk, given their longer life expectancy and subsequent higher living expenses. The first step in gaining control of spending is to create a budget. Once a basic budget is in place, it can be used as the foundation to create a detailed plan for retirement. You can determine how much you’ll need to retire based on your spending needs and projected Social Security or pension benefits, coupled with appropriately managed portfolio assets.
The next step is to coordinate your budget with your portfolio so that you cover short-term spending needs through cash and bonds and long-term spending needs through stocks. With the right asset allocation, you can balance current needs with capital preservation and growth to cover future and uncertain expenses. For women, this balance is crucial, as they tend to favor security yet face greater long-term risks, including longer life expectancies and higher health care costs.
Investment considerations
Women approach investing differently than men. Women tend to invest more conservatively, trade less frequently (a good thing) and demonstrate a greater willingness to stick to a plan (another good thing). Based on these traits, women are actually well-positioned for investment success when a plan is in place. In a survey, 57% of women reported a fear of running out of money — second only to a fear of losing their spouse. Having a coordinated retirement plan and investment strategy goes a long way toward alleviating this fear.
Women should also consider options to manage health care costs. Although many people choose to self-insure, long-term care insurance can help avoid drawing down assets for the health costs of one partner, leaving reduced financial support for the surviving partner. If long-term care insurance makes sense for a couple, it is more important for the man to obtain the coverage, since women generally live longer.
With the right retirement strategy, those who live long can also live very well.
Michelle R. Santiago, chief trust administrator officer at H.M. Payson in Portland, can be reached at mrs@hmpayson.com
Molly C. Reinfried is a portfolio manager and chair of the financial planning group at the firm. She can be reached at mcr@hmpayson.com
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