Women and retirement planning: an overview

Women may approach retirement planning with diligence, fear, confusion and hope. A majority of women do not view themselves as savvy investors and may leave retirement planning up to their husbands if they’re married. There are distinct challenges for women and retirement planning. At the same time, potential upsides mean you should take a bigger role in your long-term financial plans. 

This post gives you a quick course in women and retirement planning. You’ll (1) view statistics that drive the market for retirement and financial planning, (2) consider whether you want a financial advisor, and (3) learn about resources to build your confidence for retirement planning.

Women earn and save less than men

Women still earn less than men. About 20% less, according to the American Association of University Women. This gap exists at every academic level. Indeed, women with undergraduate and advanced degrees have a larger pay gap with their male counterparts than less-educated women experience.

Reasons for women’s lower earnings include traditional explanations. Experts cite, for example, women’s different occupational choices and decisions to stop working to raise children or care for family members. Even so, gender bias and discrimination continue to affect women’s pay when they perform comparable jobs to men.

A persistent and complicated problem

Gender bias influences the total number of executive positions held by women. Complex sociological factors also come into play. For example, our society values some jobs over others. Often women hold those less-valued jobs. The situation presents as a “chicken and the egg” type of problem. Ultimately, however, the fact remains that women are paid less than men.

The 17th Annual Transamerica Retirement Survey finds that 72% of employed women contribute to employer-sponsored retirement plans, and they’ve been saving since age 28. Men, on the other hand,  start saving for retirement two years earlier, at age 26. And 80% of them save in retirement plans at work. Even more sobering, men save 10% of their income, while women save 6%. In sum, women’s lower savings rates combine with their lower income to paint a dire picture for women and retirement planning.

But women control a growing share of wealth

Even though women earn less at work, the number of wealthy women in the US is growing twice as fast as the number of wealthy men. Forty-five percent of American millionaires are women. They control $11.2 trillion (39%) of US assets available to invest.

Additionally, 37% of women say they are the primary breadwinner of their family. More than half report that they have a “great deal of responsibility” or “do it all” with regard to managing their family’s long-term savings and investments. Thus women represent an increasing portion of the market for retirement savings advice.

There are gender differences between female and male investors. A study by Fidelity Investments identifies several characteristics of female investors:

• More likely to pursue “buy-and-hold” investment strategy and thus are less exposed to market timing risk
• Prefer more diversified and “target date” type portfolios
• Eager for investment education — take part in Fidelity’s live and online events

When it comes to women and retirement planning, companies stand to profit from meeting the needs of female investors. Hence investment management firms are taking notice of women’s growing clout as potential clients.

What matters most for women and retirement planning?

Harvard Business Review says the financial services industry may be missing out on trillions of dollars by ignoring the needs of female investors. It criticizes investment company cultures for failing to embody the things women value. These conclusions derive from a survey of women with personal income over $100,000 or investable assets over $500,000. Among survey respondents in different wealthy countries around the world, 53% lack investment advisors. In the US, 44% of the women who have an investment advisor say they don’t feel understood by that individual.

Especially noteworthy among the data on women and retirement planning is the desire for authentic connection with their advisors. Female investors have high standards. Strong portfolio performance isn’t enough: they want an advisor relationship grounded in communication and trust. Married women don’t appreciate financial advisors who address most of their comments to their husbands. In fact, as many as 70% of widows change advisors within a year of their husband’s death. Reasons for the switch include the widow’s desire to find someone who understands her.

What women want in a financial advisor

So what do women want in a financial advisor? A proprietary study by Catherine Avery Investment Management (CAIM) finds the following priorities among female investors when choosing a financial advisor:

• Proven track record (35%)
• Ability to make things easy to understand (35%)
• Personalized attention (29%)

Interestingly, only 5% believe the ideal financial consultant would be female.

Excellent portfolio results are foundational. But to succeed with women and retirement planning, investment managers have to build trust with female investors. This goes beyond asking about women’s children by name. Respect and empathy are key.

Clear explanations can help win over female clients. These explanations may come from a personal financial advisor, or they may come from web resources.  Many investors like easy-to-navigate websites with relevant fact sheet downloads. In fact, they may prefer such web resources to dealing with a “live” expert.

In summary, how much you care about personalized service will help you determine the type of financial advisor that suits you best.

Should you hire a financial advisor?

Whether you should hire your own financial advisor depends on several things. First, your own level of comfort with financial investments. Second, how much time you have to spend on your portfolio. Third, your preferences for human versus computer-driven management. And fourth, your preferences regarding investment fees and assessment of value added by a financial advisor.

According to the financial website Nerdwallet, there are four main types of financial advisors:

1. Registered Investment Advisor (RIA)

Registered with the US Securities and Exchange Commission or a state regulator, RIAs are held to a “fiduciary standard” in dealing with clients. “Fiduciary” is an industry term that means the planner puts client interests first.

2. Certified Financial Planner (CFP)

This designation requires substantial education, a multi-part exam and demonstrated work experience. The Certified Financial Planner Board of Standards oversees CFP education and licensing. All CFPs must act in a fiduciary role when providing financial planning services.

3. Robo-advisor

These online advisors use computer software and algorithms to manage client portfolios — usually at far lower costs than traditional financial advisors. Many of them offer access to human consultants as well. Venus Williams made news last year as a backer of Ellevest, a female-oriented robo-advisor. For more information on top robo-advisors, check out this post from Nerdwallet.

4. Broker

This type of advisor sells stocks, mutual funds and other investments at a brokerage or broker-dealer. Brokers are usually required to sell products that are “suitable” for clients. This is a lower standard than the fiduciary standard, because a “suitable” investment may entail higher costs for you (and larger commissions for the broker).

Personal financial advisor pros and cons

Pros

• Gets to know you and understands your goals
• Saves you time
• Earns you higher rates of return (theoretically)
• Depending on your choice of advisor, he/she can assist with other things like developing a financial plan, total asset allocation, saving for education, and selecting life and long-term care insurance

Cons

• Higher management fees may negate potentially higher returns
• Non-fiduciary advisors may place you into investments that benefit them at your expense

Most financial sites urge investors to avoid brokers who earn commissions based on the products they sell you. If possible, look for an advisor who charges you an hourly rate and abides by a fiduciary standard.

Many financial advisors, however, charge fees based on total assets under management. If this is the case for advisors you’re considering, compare rates and make sure you’re getting the value you would expect for what you’re paying.

Robo-advisor pros and cons

Pros

• Significantly lower fees than personal advisors
• Some robo-advisors offer you access to people who can advise you as well (depending on portfolio size and fees paid)

Cons

• You don’t have a dedicated person who knows you
• Can be challenging if you lack investment confidence
• Can be confusing if you’re uncomfortable with advisor’s investment technology

Robo-advisors charge lower fees than traditional financial management companies. They may not earn you outsized returns, but neither are they likely to lose more than the market indices that their algorithms follow.

Hence if you are comfortable with their technology and don’t place value on having your own personal advisor, a robo-advisor may be a good fit for you.

Hybrid solution: premium robo services

Companies are developing hybrid products that combine the low-fee appeal of computer-based trading with an element of personal advice.

Typically these offerings require minimum account balances. For example, to become a Vanguard Personal Advisor Service client, you have to maintain $50,000 or more in your investment account. The management fee is 0.30% of assets under management per year. It doesn’t matter how many trades you make, etc.

Several robo-advisors offer two or more tiers of portfolio management. For example, Betterment charges digital-only investors a 0.25% annual fee with no minimum balance. Its Premium service requires $100,000 minimum balance and costs 0.40% per year. But for this amount, you have unlimited access to their Certified Financial Professionals and advice on investments outside of Betterment, like how to allocate your company 401(K).

Ellevest offers a similar two-tier model with 0.25% /$0 minimum balance and 0.50% /$50,000 minimum for Premium accounts.

A hybrid solution may make the most sense for women and retirement planning. It’s a way to save on investment costs while still taking advantage of professional advice.

Still unsure? Try this quiz

Personal finance site The Balance has a simple quiz to help you decide whether you need a personal financial advisor. Their website also contains a section called Retirement Decisions you may also find useful.

Resources for women and retirement planning

If you’re interested to learn more about investing for retirement, there are loads of websites, books, podcasts and other resources to check out. Here are a few of my favorite resources for women and retirement planning:

Overview

The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns* by John C. Bogle. Classic investing guide by mutual fund pioneer who advocates simple, low-cost, buy-and-hold strategies for building wealth over the long term.

The Charles Schwab Guide to Finances After Fifty: Answers to Your Most Important Money Questions* by Carrie Schwab-Pomerantz. Book by Charles Schwab’s daughter and President of the Schwab Foundation that addresses basic questions about finances at midlife in an easy-to-read format.

The Dough Roller Money Podcast by Rob Berger. One of my husband’s faves, this podcast will teach you the in’s and out’s of all kinds of personal finance topics, including retirement planning.

Women and retirement planning

WISER: Women’s Institute for a Secure Retirement. An organization that focuses on education and advocacy for women and retirement planning. Their website provides lots of fact sheets and links to other resources.

Your retirement planning to-do list

When you review retirement planning data and try to apply them to your own life, it can feel overwhelming. But don’t procrastinate. Here are things you can start doing now that will benefit you in retirement:

1. Save

An obvious point. But few of us have saved enough money for retirement, especially since life expectancies continue to rise. If you can, try to squeeze out a little more savings. It will accumulate and add up over time.

2. Plan

Whether you work with a financial advisor or not, write down your financial goals and steps you’ll take to achieve them. All too often people get to retirement age without planning exactly how they are going to live without that regular paycheck.

You may want to work with someone who can help you develop a budget and savings plan. This process may prove painful to analyze and put in place. But not as painful as your retirement will be if you ignore the opportunity to prepare!

 3. Teach your children

Don’t let your kids make the same mistake that most of our generation has made. Help them understand that saving a small amount now will put them way out in front of people who wait to start saving later. Check out this chart from J.P. Morgan’s 2016 Guide to Retirement that shows the benefit of saving early.

In this example, “Quitter Quincy” saves $5000/year from age 25-35 ($50,000 total) and then stops. Compare this to “Late Lyla,” who starts saving $5000/year from age 35-65 ($150,000 total). Both earn 6%/year. But because Quincy’s investment returns begin to compound earlier, by the time they both reach 65, his nest egg is the same size as Lyla’s — even though he initially saved only one-third the amount that she did. It’s a powerful illustration of the benefit of saving early.

So just get going. You’re one day closer to retirement today than you were yesterday. Even if you messed up retirement planning in the past, don’t avoid it now. Take charge of your life — you’ll be glad you did.

 

 

Images via Shutterstock, 401kcalculator.org,  J.P. Morgan Asset Management

Disclaimer: The information contained on this website is for information purposes only. It does not constitute legal, financial or other advice.