How women can empower their retirement

Fidelity Viewpoints — 06/28/11

Why taking an early and active role can be key to financial success.

Saving for retirement can be a daunting task for the average American, but for half the population—women—it can pose even more challenges. Why? Because women tend to live longer, save less, and not be as engaged as men when it comes to retirement and financial planning. But women who take an active role in their finances can overcome the odds and feel potentially more confident about their financial future.

“It’s especially important for women to engage in and prepare for retirement,” says Kathy Murphy, president of Personal Investing at Fidelity Investments. “Women often haven’t saved enough—especially if they have taken time out of the workforce to raise a family or care for an aging parent. Therefore, they need to carefully consider how they will live in and pay for their retirement years. I strongly believe every woman needs to be informed, involved, and prepared for retirement. Women cannot afford to take a backseat when it comes to this important financial issue.”

Getting more involved in financial planning at any age, whether you are working with a spouse, never married, divorced, or widowed, is a positive step toward a rewarding retirement.

Let’s take a closer look at some of the key issues that have been proven to affect women more than men, and some steps you may want to consider taking.

Consider longevity and lifestyle

Women live longer than men — Women generally live longer than men, three years more, in fact. Currently, there are  six million more women than men ages 65 and over in the United States.¹ So planning for a lengthy and financially healthy retirement, one that could last 30 years or more, is crucial.

By taking an active role in your finances now, you can help ensure that you will have a reliable income stream that can help support your anticipated spending habits, housing needs, and leisure activities throughout retirement. Once you have an idea of how and where you want to live in retirement, you’ll want to reexamine your portfolio on a regular basis. Your desired future lifestyle may have a direct effect on the types of investments you consider to help build a reliable income stream. Read: Turning into retirement.

Women often live alone — Because women tend to live longer, they are likely to outlive their spouses and spend considerable time alone in retirement. Today, 57% of American women 65 or older are single, compared with just 26% of elderly men.² There may be additional financial burdens that come with living alone, such as paying all the bills yourself, caring for your home, paying for long-term care, or moving to an assisted living facility.

Take action:

• Having a solid income plan in place may help ensure a steady stream of reliable income. To learn more about how to structure your retirement portfolio, see our online education center
• Speak to your family members and loved ones about how and where you want to live in retirement, and document your desires so your wishes are known should you become incapacitated. You may also want to start or revisit your estate plan.

Factor in saving and investing

Women save less than men — Unfortunately, because of historical work patterns and lower income levels, women are likely to enter retirement with fewer resources than men. Despite some progress in recent years, women still earn significantly less than men in almost every occupational classification. Full-time, working women earn 77 cents for every dollar a man earns, according to the latest Census Bureau statistics.³ However, there is encouraging news here. According to Ecommerce Journal, working women in their 20s have now closed the wage gap and are earning as much as men, and those who remain single earn more throughout their lives than men.

Women do need to have a realistic view of how their retirement savings opportunities can be impacted should they decide to work part-time or leave the workforce for any length of time to care for children or aging family members. First, women who continue to work part-time for an employer that offers a retirement plan are less likely to be vested if they are covered.⁴

Second, of the 62 million wage and salaried women (age 21 to 64) working in the United States, just 45% participate in a retirement plan.⁴  And women's average defined contribution plan balances are only 60% of men's average balances.⁵ All these factors mean many women have not saved enough in their plan and need to consider stepping up their contributions whenever possible.

Women tend to be more conservative investors — Many women tend to gravitate toward conservative or “safer” investments, which is often a knee-jerk reaction to the investing process.⁴ If you haven’t done so already, learning more about the importance of long-term growth for your retirement portfolio, the relationship between risk and reward, the benefits of diversification and ongoing portfolio rebalancing, and the importance of tax-advantaged investing may be a great way to help ensure that your portfolio is balanced appropriately and is geared toward meeting your financial needs.

Be sure to track income sources — How much have you saved in your workplace savings plan? Are you aware of how and when to take Social Security? Do you understand survivor benefits should your spouse pass away? Are you entitled to a pension? Do you know if you are eligible for a portion of your husband’s pension or Social Security benefit if you are divorced or widowed? Being aware of all income that is due to you and how to distribute it in a tax-efficient manner is a key component of retirement success. Read: Social Security tips for couples and Social Security tips for singles.

Consider a retirement income plan — Given women’s longer life spans, it’s important to think about putting your own retirement income plan into place so that you don’t outlive your retirement income sources. Perhaps you never married, or are divorced or widowed. You need to know exactly how much income you can count on each month and where the sources will come from. Be sure to discuss your plan with your investment professional.

Take action:

• Consider maximizing your retirement savings through automatic investing in your workplace savings plan. In addition, consider making catch-up contributions after age 50.
• Confirm that your investment mix is aligned with your short- and long-term financial goals. Your Fidelity investment professional can help you plan appropriately.

Put the power of knowledge to work

Women often lack investing confidence — Many women say they don’t feel fully secure about making financial decisions. According to a recent Fidelity study on couples’ behavior,⁶ wives are much less confident (85%) than husbands (96%) when asked if they could assume full financial responsibility of their retirement finances, if necessary. At the same time, more wives are concerned about being financially prepared if their spouse passes away first (23% vs. 6% of husbands.) Be sure to cover any and all investing questions with your investment professional. Make a list of questions before your visit and ensure they get answered.

Be prepared for the unexpected — Be prepared for potential threats that could jeopardize your financial security. This includes the risk of serious illness or disability, the threat of inflation or increasing tax liabilities, a sudden market downturn, and the risk of poor investment decisions or inappropriate risk management, to name just a few. Having an emergency fund and proper insurance can help. Likewise, proper asset allocation is critical, particularly during times of extreme market expansion and contraction, as asset classes grow at different rates and lose value at varying levels. Being prepared also means knowing where critical documents are kept and what you would need to do if a spouse or loved one were no longer able to assist with financial decision making. Read: Leave more to your loved ones.

Take action:

• Stay on top of changes in the markets by reading the wide variety of Viewpoints market commentary, investing, and personal finance topics.
• Make sure you document all necessary financial paperwork and track all sources of income to which you are entitled, including pensions, Social Security, and bank, brokerage, and retirement accounts.
• Read up on what you can do to be better prepared, and create a retirement income plan. Visit Fidelity's Guide to Retirement Income Investing.

Next steps

Fidelity can help by offering you one-on-one guidance.⁷ Call 1-800-FIDELITY to speak with a Fidelity representative.

1. Women's Institute for a Secure Retirement, June 23, 2011.

2. U.S. Census Bureau, America’s Families and Living Arrangements, “Current Population Survey, 2010 Annual Social and Economic Supplement.”

3. Census Bureau reports and data, Current Population Reports, “Median Earning of Workers 15 Years Old and Over by Work Experience and Sex,” updated September 2010 by the National Committee on Pay Equity.

4. U.S. Department of Labor, “Women and Retirement Savings,” June 23, 2011.

5. LIMRA study, Retirement Savings of Working Man and Women, Februray 3, 2011.

6. 2011 Fidelity Investments Couples Retirement Study. The survey was fielded in May 2011 through Knowledge Networks Inc.’s nationally representative panel and conducted by Richard Day Research.

7. Although consultations are one on one, guidance provided by Fidelity is educational in nature, is not individualized, and is not intended to serve as the primary or sole basis for your investment or tax-planning decisions.

Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Diversification and Asset Allocation do not ensure a profit or guarantee against loss.

Always consult an attorney or tax professional regarding your specific legal or tax situation.

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