Mellody is President of Ariel investments, a Chicago-based money management firm that serves individual investors and retirement plans through its no-load mutual funds and separate accounts. Additionally she is a regular Financial Contributor and Analyst for CBS news.
Tom: Good morning, Mellody! Very important topic today – how American women are set to be disproportionately impacted by America’s retirement crisis.
Mellody: It is true,Tom. This is a hugely important issue, and one that has flown under the radar for far too long, so this morning I want to highlight the challenges that many American women will be confronted with as they prepare for retirement.
Tom: I didn’t realize this was an issue – tell us a little bit about it.
Mellody: The numbers really speak for themselves here. In numerous studies, women themselves have indicated that they are concerned about their retirement outlook across a number of issues. In one recent survey, only 7% of women said they were “very confident” about being able to retire with a comfortable lifestyle, and 43% of women said they expect to work past age 70 or to never retire. another recent survey found that only 29% of retired women have a pension, compared with 50% of men, and over a quarter of women – 27% – who are close to retirement age live paycheck to paycheck, compared with fewer than 1 in 5 men.
Tom: Why are women likely to face more challenges?
Mellody: There are two big reasons for this. The primary driver is that women earn less. We have talked about this before on money Monday, tom, but the fact is that we continue to see a significant pay gap between women and men. and while there tends to be focus on the immediate impacts that pay inequality can have on women – after all women make around 80% of what men make – pay inequality has huge long term consequences in terms of retirement savings. On average, men had $100,000 in their 401(k) plan, compared with women’s $59,300. And the variation in retirement savings holds across all salary levels.
The second big reason that women are facing greater retirement uncertainty than men is life expectancy. In the US, women live longer than men – 3 full years longer, according to the world health organization. Combine this with the fact that married women tend to be younger than their husbands, and that means that these women have to plan for longer retirements, and have to do so with the expectation that they will live alone in their final years. All this means more money, especially because the finals years of life are more costly in terms of health expenses.
Tom: Ok – what can women do?
Mellody: The main way to deal with this is to know what you are up against, tom! If you are not actively engaged in your retirement, or do not know the details, take steps to change that! For all women, this means doing your research, keeping yourself informed about your retirement, and not taking the east path. Another survey found that only 36% of women are comfortable selecting investments that are right for them, compared with 63% of men. So a big piece of this is getting involved in these big decisions that impact you! Be prepared to plan for a longer retirement, to save enough for higher health costs, and remain engaged in your planning regularly, throughout your life.
Tom: Ok, ladies! Mellody says you need to stay engaged! Anything else we need to know?
Mellody: Yes! I want to make sure that we highlight the advantages that women have here, because it isn’t all bad news. First, women are much more likely to ask for help, and that is a good thing! Ask a lot of questions! Secondly – and this is a big one in terms of investing – women tend to avoid trading in and out of investments. That bodes well for their long-term investment returns, and it is a strategy that we advocate at my company. One study found that men trade investments 45% more than women, and that behavior reduces men’s net return by 2.65% a year, compared with 1.72% for women. So make sure you are informed, and continue to ask questions, be patient and focus on the long-term. It will definitely help overcome some of the challenges that face women in retirement.