COLUMBUS, Ohio (TheStreet) -- We've all seen headlines calling out the retirement savings crisis facing American workers and the need for them to take steps to protect their financial futures. One aspect of this issue that deserves more attention is the role gender can play in retirement readiness.
Several new studies have focused on this topic, including a Harris Interactive survey last year sponsored by Nationwide Financial Services (NFS) , finding women's average defined contribution plan balances are 40% smaller than men's and that they meet with financial advisers less frequently. When planning for retirement, there are three main obstacles women must overcome:
Women live an average of five years longer than men and are 10 times as likely to reach age 85, according to the American Association for Long-term Care Insurance. Longer life expectancies put women at greater risk of outliving their retirement assets and increase their chances of incurring long-term care costs. Women that live longer than their spouse may also face reduced household income from Social Security and pensions.
One way women can help mitigate their longevity risk is with products, such as annuities, that can offer a guaranteed stream of income for life. Women should also consider whether they could benefit from some form of long-term care insurance to help manage costs when they reach old age.
Time out of the work force
Women are the primary caregivers in this country and, according to the Women's Institute for a Secure Retirement, typically work 12 years less than men over their lifetime to care for children and other family members. While out of the work force, women are not able to build their pension benefits, pay into Social Security or contribute money to an employer's 401(k), all of which can hurt retirement income.
Women planning to take time out of the workplace to raise children or who might have to care for an aging relative should think about contributing more money into retirement plans early in their career. This can help compensate for the years they won't be contributing to an employer-based retirement plan.
The earnings gap
Women have gained a lot of ground in the workplace but still earn less than male counterparts. WISER reports that, on average, women make 77 cents to every dollar a man makes. This means men have a chance to defer greater amounts of money into retirement savings and investments and have the ability to get higher pension benefits from their employer.
As a result, women need to be even more diligent and effective when it comes to planning for retirement. To help ensure they make the most of their retirement plan, they should take extra time and care when selecting their investments.
Some additional tips for women preparing for retirement:
- Be proactive. No matter what age you are, the sooner you assess your retirement goals and develop a plan to achieve them, the better off you'll be. To help you get started, take advantage of free online planning aids that can show if you're on the right track. And take full advantage of any matching 401(k) contributions from your employer.
- Focus on your retirement income needs. Reaching for a single "big" target retirement savings number can be overwhelming and demotivating. Instead of a single "big" number, think about how much annual income you'll need in retirement and make that your target.
- Consider working with a financial adviser. Planning for retirement is more complicated than ever. A trusted financial advisor can help you identify your needs and implement a retirement savings strategy.
The unique obstacles women must overcome on the road to retirement represent a challenge and opportunity for the financial services industry. Advisers who take the time to understand the concerns of their female clients and deliver solutions to address them will show value and likely grow their business in the process.
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