According to a new study from Massachusetts Mutual Life Insurance, women are not as prepared for retirement as men. With a projected lifespan longer than men, women need to save more for their “golden years” to insure a financially secure retirement.
Continue Reading Below
“There are many barriers that make it more challenging for women to prepare to retire, a reality that we need to overcome if women are to enjoy a secure retirement,” says Teresa Hassara, Head of MassMutual’s Workplace Solutions. “MassMutual’s study shows that many women are less comfortable with financial issues and money in general, so it’s critical for them to have access to more education, professional financial advice, planning tools and other resources to meet these challenges head on.”
Hassara discussed with FoxBusiness the study’s findings and what women need to know to protect their financial future.
Boomer: What are some of the difficulties women face preparing for retirement?
Hassara: Women face several challenges that make it harder to plan for retirement. Those challenges include the gender wage gap, the fact that women are more likely than men to leave the workforce to care for children and others, and the actuarial reality that women tend to live longer than men. MassMutual’s study found that women anticipate living for 25 years in retirement but expect to have enough money to last only 20 years. That’s a plan for potentially being impoverished in old age.
Compared to men, women are less confident about managing savings and investments, optimizing Social Security, replacing a higher percentage of their pre-retirement income, and taking investment risk.
For instance, only about a third of both men and women say they will need to replace at least 75 percent of their pre-retirement income when they retire, the study shows, with 41 percent of men and 45 percent of women saying that will only need 50 percent or less. That may be problematic for many women in the long term. MassMutual’s benchmark for retirement preparedness is the ability for retirees to replace 75 percent of their pre-retirement income from all sources, including retirement savings, Social Security and a pension, if available. While many retirees can manage their finances to reduced income levels, they’re likely to experience more financial difficulties as they age and healthcare problems arise, especially if they need an extended period of long-term care in the future.
Meanwhile, pre-retired women are less likely than pre-retired men to say they know how to make the most of Social Security (62 percent vs. 70 percent).
Boomer: The study shows women are less comfortable with investment risk than men. Should they be more conservative in retirement than their male counterparts?
Hassara: When it comes to saving and investing for retirement, women tend to be more concerned than men about market volatility and mismanaging investments. Pre-retirees are more likely to worry than retirees. But women express greater openness to financial education and professional financial advice, which are critical if this predicament is to be solved.
While nearly all women say they want their investments to grow during retirement (97 percent), women are less comfortable with investment risk and tend to believe they should become considerably more conservative in retirement than their male counterparts, according to MassMutual’s study. Women who work with a financial advisor (71 percent) are more likely to say their advisor recommends that they invest more aggressively.
However, women, like all investors, should invest in accordance with their financial goals, time horizon and risk tolerance. A professional financial advisor can help you determine what makes the most sense for your personal financial goals.
When saving in an employer-sponsored retirement savings plan such as a 401(k), we recommend that women consider target date funds or managed accounts. Both types of investments take into consideration an investor’s time horizon to retirement. Both target date funds and managed accounts typically rely on a “glide path,” which allocates your money more heavily in equities at younger ages and gradually shifts those investments to bonds and fixed investments to preserve capital as you approach and enter retirement. MassMutual’s study found that women appreciate investments that take the guesswork out of managing their retirement money.
Boomer: Going forward what can women do to be more prepared for retirement?
Hassara: We suggest that women start planning for retirement as soon as possible, the earlier the better. Women also need to review their progress often, regularly conducting a “gap analysis” to project their retirement income and expenses to determine if they have an income shortfall or “gap.” A financial advisor can conduct a gap analysis; online tools are also available to help. The sooner any shortfall is addressed, the better because you want to put the power of compounding to work to help your money grow over time. An investment that grows at an average annual rate of 7 percent doubles every 10 years.
We also encourage women to take advantage of their employer’s 401(k), saving enough to obtain any employer matching contributions, maxing out savings to the extent possible, and taking advantage of the “catch-up provision” for those 50 and older. Saving on a before- or pre-tax basis can also help by making saving more affordable.
Other strategies that may be helpful include investing in annuities to create a lifetime income, working longer to increase your savings, putting off taking Social Security as long as possible to increase your benefit, and potentially working part-time in retirement to supplement your income. However, keep in mind that working in retirement can potentially reduce your Social Security benefits until you reach age 70.