Cecily O'Connor
RedwoodAge.com
Many women say saving for retirement is their biggest financial priority, but lack confidence in their ability to retire with a lifestyle they consider comfortable.
In general, less pay and less time in the workforce has limited a woman's ability to amass a nest egg over time. While many females increasingly recognize the value of retirement savings plans and are becoming more educated about investing, longer life spans continue to place baby boomer women at financial risk if they outlive savings.
"One of the keys to success in saving for retirement is consistently saving over a long period of time to enjoy the benefits of compounding," said Catherine Collinson, market trends expert for the Transamerica Center for Retirement Studies, a nonprofit organization. "Lower wages and breaks in employment not only result in saving less, but also limit the opportunity for the savings to grow over time."
Nearly half of women cited 401(k) plans and individual retirement accounts (IRAs) as their expected primary source of income to cover retirement living expenses, according to a Transamerica study.
In fact, many women view a 401(k) as a very important benefit. About 58 percent of women said they would choose a job with excellent retirement benefits that meets their minimum salary requirements over a job with a higher-than-expected salary and inferior benefits. In addition, about 49 percent of women whose job does not offer a retirement plan said they would likely leave for one that does, up from 28 percent in 2004.
Participation Drops
While that data is positive, there are still signs that reveal little progress
and some alarming trends. For example, 401(k) participation rates among women
have slipped 6 percentage points, coming in at 70 percent in 2006 compared to 76
percent in 2004. Median contribution rates have remained the same at 6 percent
of salary, even though catch-up provisions for workers over 50 enable them to
sock away an extra $5,000 a year.
There also was a 31 percent increase in the number of women "not sure" about how much they need to save for retirement. Many women find it difficult to save while juggling financial needs. Twenty-one percent said saving for retirement is their greatest financial priority. Covering living expenses is a big deal for 19 percent.
Challenges
Gap in pay between men and women is just one of the financial challenges females
face. The female-to-male earnings ratio is 77 percent, with full-time,
year-round women earning a median salary of $31,858 compared to men earning
$41,386, according to the U.S. Census Bureau.
Twenty-four percent of the U.S. households with children under 18 years old are headed by women with no husband present, more than three times the number of households headed by men with no wife present, the Small Business Administration reported.
Lastly, women are more likely to take time out of the workforce or work part time. In fact, 25 percent of women in the workforce work part time compared to only 11 percent of men, according to the Bureau of Labor Statistics.
These challenges have far-reaching implications for women and their financial security.
Women have increased life expectancy and are more likely to require long-term care. Yet, the Transamerica survey found that women estimated their median retirement savings needs at $500,000, half of the $1 million that men estimated.
"For women who feel they can't afford to save, it's important for them to ask themselves whether, in the long run, they can afford not to," Collinson said.
Educational Resources
To that end, the need for education is paramount. Three-quarters of the women
surveyed agreed that they don't know as much about retirement investing as they
should. About 22 percent agreed that they have a very good understanding of the
principles of asset allocation, ensuring their investments are consistent with
their risk tolerance, savings horizon, and targeted returns.
Transamerica highlighted several resources that provide education on financial literacy and preparing for retirement.
