Hopefully, my article title doesn't start a gender battle of my blog. Hear me out first. On average, women work fewer years and earn less than men, but they also tend to live longer.1 Based on these studies, it makes planning for retirement that much more important for women.
Women Don’t Invest Differently…
Unfortunately, some negative stereotypes still exist about a woman’s ability to manage money, which may cause some women to feel they shouldn’t make their own investment choices. Some leave the decision making to their husbands, which can result in their being ill-equipped to handle their finances if they outlive their spouses.
Despite the stereotypes, studies show that the majority of married women actively participate or take the leading role in managing family finances. Moreover, women outnumber men in participation in investment clubs across America. I was able to visit my first investment club last week and was pleasantly surprised on how the women were current on the market's happenings.
Educating themselves about investments and long-term planning can help women feel more comfortable with riskier yet potentially more rewarding investments. As more women enter the field of financial advising and planning, female investors may also be more inclined to seek advice from other women.
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…But There Are Real Obstacles to Overcome
Women earn only about 80 cents for every dollar earned by men.1 Because they earn less, women often are unable to invest as much as men. However, in order to make up for other discrepancies in retirement benefits, women may actually need to invest more.
For example, because women often leave work to bring up children or care for elderly relatives, they have fewer total working years. On average, they spend seven years out of the workforce to care for family members.
This may mean that women qualify for lower pension benefits. Fewer years in the workforce, fewer years with a single employer, and lower pay are all factors that may contribute to a lower average pension for female retirees. At the same time, women on average live longer than men. That means they must provide for more years in retirement than their male counterparts.
As a result of some of these factors, women may also receive lower Social Security benefits than men. Social Security benefits are calculated based on a person’s highest 35 years of earnings. If a benefit recipient doesn’t have 35 years in the workforce, the Social Security Administration will add zero-earnings years to his or her record to equal 35 years. This will lower the average monthly earnings figure and may result in lower benefits for women who have not worked for a total of 35 years.
Working Toward a Solution
While there is clearly a gender gap in earnings, data from the Bureau of Labor Statistics has shown improvements in women’s earnings. Higher earnings for women could mean the potential for more investments.
Nonetheless, the bottom line is that in order to make up for differences in earnings and benefits, and more retirement years due to longer life spans, women may have to invest more.
1Sources: Bureau of Labor Statistics, September 2004; U.S. General Accounting Office, October 2003 (most current data available).
2Sources: On Wall Street, February 2005; National Association of Investors Corporation, August 2004.