|
Yo, ladies! It's time to adopt a "me-first"
attitude when it comes to saving for retirement.
There are a number of compelling reasons why women should
be especially diligent about saving in a 401(k) or other tax-deferred retirement plans,
even if they have other demands on their money.
 |
"Women have a different approach
(to finances) and need to be approached differently."
|
| - Debra Nichols,
director of women's financial advisory services at First Union bank. |
|
On average, women live longer, earn less (and therefore may
get smaller Social Security checks), and are single parents more often than men. They
change jobs more often and spend more years out of the work force than men do, and are
more likely to work in "pink collar" industries that do not offer pension plans.
And yet, women often don't focus their attention on saving
for retirement. Other priorities get in the way, or they assume someone else will take
care of it.
"Women are great at putting themselves last,"
said Debra Nichols, director of women's financial advisory services at First Union.
"They have a different approach (to finances) and need to be approached
differently" by those who help them plan.
Live Long and Prosper
On average, women live longer than men, so women need to
plan for a longer retirement.
"If you live longer, you're going to need more
money," said Martha Priddy Patterson, author of The New Working Woman's Guide to
Retirement Planning: Saving and Investing Now for a Secure Future. Some of this money
will come from Social Security, but certainly not all of it. Women need to find other
savings vehicles, and tax-deferred plans like 401(k)s are an excellent place to start.
Women should be sure to take their longer life expectancy
into account when estimating how much money they will need in retirement, said Patterson,
director of employee benefits policy analysis at Deloitte & Touche. Some retirement
calculators may use an average life expectancy for men and women, which is lower than that
for women. If you plan to live until you're 82 and end up living until you're 85, you'll
run out of money.
According to a recent survey by the Employee Benefit
Research Institute, men are doing slightly better than women at planning for retirement.
The 1999 Women's Retirement Confidence Survey released last November found that 70% of
women and 71% of men were saving for retirement. But, fewer women than men (44% compared
to 54%) tried to estimate how much income they would need in retirement.
When asked if they felt confident they were doing a good
job of preparing financially for retirement, 21% of women said they were "very
confident" compared with 29% of men. But when "retirement readiness" was
measured, only 7% of women and 8% of men were found to be doing a "very good"
job. A "good" rating went to 28% of women and 34% of men, while 34% of women and
29% of men scored "adequate."
Revolving Doors Eat Up Benefits
Changing jobs often can cost you, big time.
On average, women change jobs every four years and seven
months, compared with the men's average of over five years, Patterson said. This is
significant in jobs that offer a traditional "defined benefit" pension plan (one
that gives you a specific payout upon retirement), she noted, because in many cases you'll
get nothing from that type of plan if you leave before you've been at the company for five
or 10 years.
"In the worst case, theoretically, a woman could work
her whole life and not ever vest her benefits," she added.
|
"In the worst case,
theoretically, a woman could work her whole life and not ever vest her benefits."
|
| - Martha Priddy
Patterson, author of The New Working Woman's Guide to Retirement Planning: Saving and
Investing Now for a Secure Future. |
|
However, if you contribute to a 401(k) or similar plan, the
money you contribute and the interest it earns always belongs to you, no matter how often
you change jobs. You can roll your 401(k) into a new 401(k), or into an IRA, to keep its
tax-deferred status. (But remember, if your employer offers a matching contribution, it
will probably vest over a period of years, so you should be sure to check the rules before
you quit.)
On average, women also take more time out of the work force during their careers than men
do - 11 years for women compared with 16 months for men, said Patterson. Again, if you
contribute early to a 401(k), the money can keep working for you even while you're not
earning a salary.
Actively Manage Your Money
Studies have shown that women have different attitudes
toward spending and saving than men do. That's part of the reason Tiffany Bass Bukow said
she recently founded MsMoney.com, one of a number of financial Web sites springing up just
for women.
"I ask just about everyone I meet, 'do you manage your
money?' And I can't tell you how many sophisticated women tell me either 'I don't have
time' or 'I wouldn't know what to do, anyway,'" said Bukow.
|
| Read More |
Click here
for tips on finding a financial planner
|
|
|
While men often focus on saving for retirement as a top
investing goal, women tend to rank it lower, behind other goals such as putting kids
through college or buying a home, said Nichols. Women need to realize they should start
saving for retirement at the same time they work on these other goals, because otherwise
they probably won't be able to save enough.
"For women now in their 20s and 30s, retirement
planning can be easy and painless, even if they start saving small amounts," said
Patterson. "In later years, it only gets harder."
Women are often sidetracked by credit card debt, too,
feeling they have to pay it off before they
start saving for something else.
|
"It's a tug-of-war, internally.
Must get out of debt. Must accumulate savings."
|
| - Michele Murphy, 31. |
|
Michele Murphy, 31, knows what this is like. She wants to
pay off her credit card debt (which she admits amounts to "a chunk of change")
but feels she should also be investing in the stock market.
"It's a tug-of-war, internally," she said.
"Must get out of debt. Must accumulate savings."
Murphy is doing things right by not forsaking her
retirement plan. She worked out a schedule to pay off her debt over 12-18 months while
still contributing to her 403(b). Once her debt is gone, she'll take that monthly payment
and invest it in the stock market.
Another good reason to put money in a 401(k) every month is
that it is protected by law from creditors, even if the owner declares bankruptcy. (A
study by a Harvard law professor, Elizabeth Warren, released last June indicated that
women file for bankruptcy more often than men or married couples. Her study was based on
bankruptcy court filings in eight districts, and showed that 39% were made by women, 28%
by men, and 33% by married couples over a one-year period ending March 31, 1999.)
Women also sometimes face a tug-of-war between paying for a
child's college and saving for retirement. Again, the woman should put herself first, said
Nichols.
"Too often the single mom puts everything into the
child's education and thinks she'll fund her retirement later," said Nichols. But
when "later" comes, it's usually too late for the mother to build up a
significant retirement account.
What this means, in effect, is that the mother has
unwittingly concluded an "unspoken deal with her child - I'll put you through college
and then expect you to fund my retirement," said Nichols.
Moms would be better off to tell their children
"Sorry, I can't afford to put you through college, so we'll have to look at student
loans, financial aid, or a part-time job for you. But the good news is you won't have to
support me through retirement."
"Why Can't a Woman Be More Like a
Man?"
Remember Professor Henry Higgins belting out that song in
the musical My Fair Lady? As irritating as the question is, it's worth thinking about in
terms of retirement investing.
"Women tend to invest more conservatively than
men," said Nichols, of First Union. However, "with us living longer, we should
be on the other side."
Women tend to want to preserve their savings, and
consequently think lower-risk investments are safer. But this strategy leaves them
vulnerable to the risk that inflation will eat away at the value of their savings.
"We need to educate women … (preserving) what
they've got may not be enough," said Nichols.
This does not mean that women should jump into high-risk
trading, however. That's an area where men could learn a thing or two from women. A study
released last year by two UC Davis professors found that men's overconfidence in financial
matters led them to trade stocks more often than women, and the resulting transaction
costs actually left them with a lower overall return. (For more about this study, click here)
The moral is that there is no substitute for a
well-researched "buy-and-hold" strategy when it comes to saving for retirement.
401(k) plans are an excellent place to start, because there are generally limited funds to
choose from, meaning less daunting research.
"The thing to do is to have a good learning curve so
you become comfortable with a higher level of investment risk," said Patterson.
(Always make sure your level of investment risk is appropriate to your situation.)
Here's an example: Say you put $2,500 a year into a 401(k),
with a 50% employer match. If you got a 5% return, after 30 years your nest egg would
amount to $265,353. If you were invested more aggressively, with a 10% return, you'd have
$682,288.
Wake Up and Smell the Green Stuff
Another obstacle women sometimes face is that the subject
of money and investing simply does not interest them. But, this has to change.
It's time for those women to wake up and smell the green
stuff. According to MsMoney.com, 90% of all women will control their own finances at some
point in their life (whether they want to or not).
|
| Read More: |
Women remember those who influenced their
attitude toward money. Click here to read
|
|
|
"Most of my female clients still expect their husbands
to take care of all financial things," said Larry Beltramo, a certified financial
planner in Irvine, California. Sometimes they are not interested, and sometimes they fear
appearing foolish in front of their husbands, he said. But the end result is the same -
they don't understand their financial situation. Then, if their husbands die or if they
get divorced, they are faced with learning a lot about a complicated subject in a short
period of time.
Beltramo said he has had female clients who were suddenly
widowed and knew nothing about their finances. This ignorance led to inaction. "Where
I could have helped them avoid or reduce some taxes, they put it off and it became too
late."
What's a Woman to Do?
 Article Archives
|
