A large number of gender barriers have been broken down in recent decades, but one stereotype that continues to hold strong is that women save less for retirement than their male counterparts.
Many studies have shown that women, on average, only commit 6.9% of their income to their retirement accounts. This is almost a full percentage point less than men in similar financial situations. Research also shows that 80% of women are not involved in the retirement planning of their marriage. This eighty percent rate of non-involvement can lead to many opportunities for investment advisors to reach the underserved female market. Here are three ways a prudent investment advisor can help female client be more financially secure in their retirements.
1) Plan for longevity
Longer lives are a major risk factor for women. The average woman lives about five years longer than their spouse, according to the CDC. But the majority of women continue to underestimate the length of their lives. It is not uncommon to run into women in their 90s who only expected to live into their 70s when making their retirement plans decades ago. Because of this, those women are now stuck with a very different reality, one that modern day retirees will also likely face.
Another factor to consider is that even though gender equality has made many strides over the last several decades, women are still, on average, making less than their male counterparts in the work force. Making less means fewer opportunities to save. Women, while already being most likely to care for children at home, are also more likely to for their aging parents, which is often a full-time job in and of itself. Adult family caregivers are 66% women, which has a direct effect on their current income levels and their retirement savings.
Taking all of this into consideration, it is important to stress the need for female clients to save aggressively. Prudent advisors must express an increased sense of urgency in order to stress the importance of saving for the future to their female clients, both those who are married and those who are not. It’s important to make sure that female clients are utilizing all possible employer-offered retirement benefits. If they earn enough, they should be contributing as much as the employer will match. If the client is a high earner, they may reach the annual IRS limits on 401(k) contributions, which means that they should utilize other savings options like a 457 plan.
2) Re-evaluate all estate planning documents in the event of divorce
All too often, divorce dramatically alters financial and succession planning. It is very easy for the emotional and financial trauma of divorce to cause estate planning documents to fall by the wayside. It’s crucial to handle these changes as soon as possible, prior to retirement, to ensure that clients have expressed how their wishes for end-of-life to be handled in order to prevent any future legal battles among heirs. It’s important to re-evaluate these documents every few years, but it is vital to review beneficiaries on retirement accounts and any other savings vehicle.
3) Plan for Long-term care
Since women tend to live longer than their spouses, and also save less, it is crucial to plan for their long-term care. All too often, women concentrate only on the first few years of retirement. The risk is increasing to depend on spouses or even Social Security to get all the way through retirement years It’s important for married women to have investment accounts in their own name, in case of divorce. This will allow her to have a nest egg ready to go which only she has access to.
Research shows that women experience a decline in wealth as they get older. Senior widows, even those with the highest incomes, experienced an almost 8% decline in wealth within the first five years of their spouse passing.
Those who don’t take long-term care into account during their retirement planning could derail their entire plans, even if everything else is well planned. Long-term care insurance is costly, and with no decreases in sight, it is important to plan to spend heftily on this benefit. The insurance product can be especially useful for those women who can cover some of their health-related expenses themselves. Clients should ultimately plan to cover 50% of their health care costs themselves and insure the other 50% through long-term care policies.
Women, because they are more likely to care for both children and aging parents, tend to be more vulnerable to poverty in their later years. Coupled with smaller incomes when they are working, many women have considerable obstacles to overcome when planning their retirements. Prudent financial investment advisors will be cognizant of this and help women plan accordingly. Plans that allow for longer-than-expected lives, consistent re-evaluation of estate planning documents and planning for long-term care with proper insurance coverage are all ways to best assist female clients reap care for themselves in their later years as well as they cared for others during their working years.