By: Vanessa McElwrath, CFP®, Wealth Management Partner
Women take on many roles throughout their lives- ranging from caregiver to career professional. It’s common for women to prioritize everyone and everything else ahead of their own well-being including retirement. This problem is further magnified by the fact that women earn about 85 cents to every dollar earned by men (or even less for minority women) and women generally tend to live longer than men by about 5 years. The combination of these various factors results in a significant gap in the amount of retirement assets women need and the amount of retirement assets women have accumulated. There are some key actions women can take to help bridge the gap:
Maximize Retirement Savings
Women often put their careers on pause or reduce their workload for several reasons from rearing children to taking care of aging parents. In fact, a Pew Research survey found that 42% of working mothers say that at some point in their working life, they reduced their hours to take of children or another family member. When we do so, we miss out on pay but also potential retirement benefits such as a company match or profit sharing. When given the opportunity, women with access to a company sponsored retirement plan should take advantage of the benefits and set aside as much retirement funds as possible. If you are under 50, you can defer as much as $19,000 dollars (in 2019). If you are over 50, you should take advantage of the additional $6,000 available in catch up contributions. If you aren’t eligible to participate in a company retirement plan, you could still save for retirement by opening an IRA or Roth IRA. The maximum IRA contribution is $6,000 in 2019, with an additional $1,000 in catch-up contributions if you are age 50 or older, according to the IRS.
Invest with Appropriate Risk
Numerous studies have found that women are actually better investors, often outperforming their male counterparts. For instance, a Fidelity study found that women investors outperform men by about 0.40% on average. Women are generally more disciplined and diversified investors. A pitfall though is that many women are generally more risk averse. Unfortunately, reducing risk also reduces future growth of retirement assets. Not investing at all introduces a whole new risk- not preserving the purchasing power of your assets in retirement. It is imperative for women to start investing their assets as early as possible at appropriate risk levels to harness the power of compounding.
Delay Taking Social Security Benefits
If you have taken time out of the workforce or worked part-time to raise children or to take care of aging parents, you have likely accrued less work credits which means your Social Security benefits could be reduced. To combat the negative impact on your future benefits, you should consider postponing taking social security. For instance, if you delay receiving Social Security benefits until age 70, you could permanently bump up your monthly benefit by as much as 132%. If you are married, there may also be other social security options to explore.
Get a Plan in Place
Women, either individually or together with their spouse, could benefit greatly by taking a holistic view of assets and retirement goals. A trusted fee-only advisor can help map out a plan and help prepare for unexpected challenges such as caring for a sick loved one or death or divorce.
Even if your spouse has taken the lead on investing and finances, it could still be beneficial to engage an impartial, trusted advisor to devise a plan that fits your goals individually and as a couple. You may find that you aren’t always on the same page or have made wrong assumptions about each other’s future goals. Whether you are married or not, think about making your long-term financial plan as much as a priority as other aspects of your life. At ML&R, we have several advisors that can help.
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