By: Hammond Iles on June 27th, 2013

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investing  |  Wealth Management

A majority of American women may be underprepared for their financial futures. 

Taking control of your financial future may be even more important for women than it is for men. Here’s why women need to actively save and invest.  Although women are just as optimistic as men about the stock market, they are not always as confident about their investment decisions. This lack of confidence may lead women to shortchange themselves in the long run by investing less in their retirement savings.

Regardless of gender, retirement is often more of a concern than healthcare costs, job security and managing debt. In our practice, we often see that women who participate in retirement savings plans save less than men, and are concerned that they haven’t saved enough. Let’s examine some reasons:

1. The earnings gap. Even today, men tend to earn more than women. Although the gap is closing, earning more offers the chance to defer greater amounts of salary into a company retirement plan.

2. Time out of the workplace. Traditionally, women have been the ones who have taken time out of the work force to care for young children or family members with special needs.  If a woman relies on a company retirement plan to accumulate retirement savings, time out from the workplace can amount to a financial setback. A male employee may contribute to a 401(k) plan year after year for 20 or 30 years or more, and his contribution levels may increase as his salary increases. If a woman leaves the workplace for a few years (or more), her retirement nest egg still compounds, but the steady salary deferrals to a 401(k) plan cease. When she retires, she may have less of a nest egg than her male counterpart if she just relies on the company retirement plan as her primary retirement savings vehicle. This is a compelling reason for women to build their own investment portfolios, in addition to participating in employer-sponsored retirement plans. 

3. Divorce may mean that a woman has to “start over” financially. Many women find that a “fair and equal” settlement is not an equitable settlement. When the husband earns much more than the wife, all kinds of decisions ride on the stability of the husband’s salary – the neighborhood the couple or family can afford, what school the kids attend, and so on. When that salary is gone, a woman could possibly face a reduced lifestyle, and may dip into her savings to maintain financial equilibrium.

More importantly, she may not have the earnings potential her husband has. Things can get particularly tough when the wife is a key employee at a business or professional practice her husband started years before the marriage. After a divorce, the husband may retain the business and the bulk of the business assets, regardless of the integral role the wife played in growing and running the company. Will she want to work alongside her ex-husband?

The stable job she had is a memory, and a career change and a move may be next. This is why divorce financial planning is so important for many women. Women need to walk away from a divorce not just with an “equal” settlement, but with an investment portfolio and a financial plan personalized for their needs and goals, so that they can (re)build wealth on their own.

4. Women outlive men. On average, women live five to seven years longer than men; in fact, the Labor Department estimates that almost 90% of women will outlive their husbands and spend a portion of their retirements managing their own finances.

A woman who retires alone may face a very long retirement: if you leave work at 62, it may last 20 years or longer, with only about 30% of your income coming from Social Security.

Statistics suggest that a woman’s retirement may average 22 years, compared to 19 years for a man. Factoring in projected increases in healthcare costs, it means that women will have to save more than a man annually over 30 years to maintain her standard of living when she retires.

Greg Hammond, CFP®, CPA is a wealth impact strategist who works with women, families, closelyheld and familyowned businesses, helping them grow and preserve wealth, plan  for retirement and  manage their charitable giving. He may be reached at 1-800-416-1655 or info@hammondiles.com  for guidance or a second opinion.