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Gender Disparities in Retirement

Women worry more about their lives after work. And such worries may be valid. Because they live longer and earn less, they need to save more and invest more aggressively. But they're not -- and that's why HR leaders need to step in with help.

Monday, August 11, 2008
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While both men and women dream about their golden years, planning for retirement is a nightmare for many women.

Retirement -- it turns out -- is a woman's issue. Several recent studies find that women worry far more than men do about inflation, healthcare costs and outliving their retirement savings. Unfortunately, they have good reason to worry, since they live longer, yet earn less and save less over their career.

More than 8 in 10 (83 percent) women are concerned about how inflation will affect their retirement, compared to 69 percent of men, according to a survey by Hartford Financial Services Group Inc., in Simsbury, Conn., and the MIT AgeLab at the Massachusetts Institute of Technology in Cambridge, Mass. The telephone survey was conducted among 1,195 pre-retirees and retirees aged 45 to 74.

Nearly two-thirds (64 percent) of women worry about outliving their retirement assets, compared with about half (46 percent) of men, while 36 percent of women are concerned about managing their nest egg in retirement, compared to 19 percent of men.

Women also worry more about their health: 87 percent fear that the cost of health care will grow faster than their income, compared with 77 percent of men.

In fact, the only thing that men worry about more than women do is whether they'll be bored: 19 percent of men wonder if they'll have enough to do, compared with 17 percent of women.

"[A]ging is a woman's world," says Joseph Coughlin, director of the MIT AgeLab. "She is likely to outlive her male counterpart, remain active longer, and be responsible for caring for him and others -- so it only makes sense that she is more worried about how she is going to live than about what she is going to be doing."

The irony is that women work fewer years -- often opting out for the family --so they have less money saved. Yet they will probably outlive their spouses and end up supporting themselves. 

In fact, the average women needs to save 2 percent of pay more per year than the average man, over 30 years, to achieve the same standard of living in retirement, according to a 2008 study of the retirement levels of nearly 2 million employees by Hewitt Associates, based in Lincolnshire, Ill.

But, women work less and earn less. Women work an average of 12 fewer years than men, and, according to the Hewitt study, the average woman earns $57,000 a year compared to $84,000 for men.  

At the same time, a woman aged 65 can expect to live to 85, compared to 82 for males. "Nearly one-third of women 65 today will live into their 90s. That's a longer period to stretch smaller savings. There's greater exposure to inflation," says Stephanie Chappell, corporate financial gerontologist with Hartford.  

When a woman outlives her husband, her income shrinks 50 percent on average, but her expenses only drop 20 percent, Chappell says. Women's median retirement income is only 58 percent of men's. That's a big problem because older women are three times more likely to be widowed, and they don't tend to remarry.

And because Social Security and other retirement benefits are tied to earnings, women end up with lower levels of guaranteed retirement income. Working women also participate less in pension plans or employer-sponsored retirement plans.

Women lag from the beginning: They start saving two to four years later than men and are far more conservative investors. They also put less into their 401(k) plans: The average plan balance for women is $56,320, or nearly $47,000 less than men, according to Hewitt.

The good news is that human resource departments can help women overcome their fears about retirement planning.

"First of all [it helps HR] just to know that female employees are concerned about retirement risks and are open to hearing about how to turn angst to action," Chappell says.

HR should consider targeting women employees, by scheduling forums to help women work on their retirement plans and address their needs, experts say. 

 "We found in our study that women perceive more barriers to planning. ... Men are more likely to have a written plan. Women [believe] there are too many unknowns -- how long they'll live, inflation, and it's too tough to plan," Chappell says.

Frame the discussion for women, suggests Alison Borland, defined-contribution consulting practice leader at Hewitt. "Communicate in a way that will resonate in the way they need it. ... The numbers and financials are the same but frame them in a way women will respond to. ... [For example], many women are focused on their children. [Stress that] saving for yourself is helping your children."

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Women should also be encouraged to invest more aggressively, say retirement advisers. Women tend towards conservative products with less risk, such as certificates of deposit and bonds. A retirement plan should include guaranteed sources of income (Social Security, pensions, annuities), as well as growth investments like mutual funds and growth stocks that keep up with inflation, and insurance policies, such as life, disability and long-term care insurance.

HR also should encourage male employees to plan for their wives' future needs, says Eric Waller, retirement solutions consultant with Hartford. "Most of us guys love our spouses, and if we realized their needs, we would save more ... buy more life insurance." Most retirees take a lump sum withdrawal from their 401(k); HR can educate employees about joint and survivor annuity payout options.

Other suggestions include:

*Encourage 401(k)s. Enrollment has gone up 20 percent since the federal Pension Protection Act made 401(k) participation automatic, Waller says. Retirement experts advise workers to keep their 401(k)s even when they switch jobs or leave the work force, so savings can grow in a tax-free environment. 

* Offer financial advisers. Traditionally, married couples focus more on the husband's portfolio. Yet women should start managing their own portfolios now.

"When a man dies, 70 percent of widows leave that adviser in three years and find someone else. That tells us they're not building a dual relationship [with the financial adviser]," Waller says. "Many married women don't consider the negative impact of their husband's health. What would have been a retirement nest egg for her vanishes. ... She needs to be planning on her own and separately for all the 'as ifs.' "

Waller advises HR executives to ask the firm that manages their 401(k) plans to come on site and advise pre-retirees about their portfolios, tax ramifications, Social Security, and how to invest. "I don't see very many firms providing that education. Employers can do it at virtually zero cost."







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