Career opportunities for women have expanded greatly over the last couple of decades. Yet during their lifetimes, women still earn less money than men, primarily because they take time off from their jobs to care for children or aging parents.
Women also have longer life spans than men, so they may need to fund additional years in retirement with fewer financial resources. One study found that the average retirement savings for a woman aged 65 to 69 was about 22 percent less than that of a man of the same age.
Given the challenges, it's understandable that women are 42 percent more likely than men to express concern about having enough money for retirement (according to a 2012 survey). Focusing on saving for the future and managing retirement plan investments wisely could help many women improve their retirement prospects.
Almost 60 percent of today's U.S. college students are women, and the majority of graduates who pursue master's degrees and doctorates are also women. Income disparity between the sexes has also improved – working women now earn about 80 cents for every dollar earned by men, up from 62 cents 30 years ago.
As a result, female breadwinners have become more common than they were in previous generations. Around 40 percent of wives now earn higher salaries than their husbands.
To make up for time spent outside the workforce, women may want to contribute as much as possible to employer-sponsored retirement plans, especially if they have the opportunity to benefit from a company match. The maximum employee contribution to a 401(k) or 403(b) plan in 2013 is $17,500 ($23,000 for those aged 50 and older).
Distributions from most employer-sponsored retirement plans are taxed as ordinary income. Withdrawals taken prior to age 59½ may be subject to a 10 percent federal income tax penalty, with certain exceptions such as the plan participant's death or disability.
A Federal Reserve Bank economist has estimated that the more conservative retirement investments chosen by women investors may be responsible for about 10 percent of the difference between men's and women's retirement account balances. The risk/reward trade-off means that investments involving less risk typically have a lower potential for return, and vice versa. A portfolio with too little growth potential may not accumulate enough assets for someone to enjoy a comfortable retirement, and/or returns may not keep pace with inflation.
Some anxieties about investment risk among women may stem from a lack of knowledge, but a more cautious approach is not always detrimental.
For example, some experts believe that investors who treat investing like a sport or competition tend to chase performance and could suffer losses as a result. As a group, women are generally less likely than men to be "overconfident" in their ability to select outperforming investments, a trait that may help them avoid costly mistakes such as trading excessively or taking inappropriate risks.
Over the long run, a steady buy-and-hold strategy based on the investor's financial goals, time horizon, and risk tolerance could serve men and women well.
In some marriages (and among older couples in particular), husbands may be handling many of the household's investing decisions. Considering the possibility of divorce and the tendency for wives to outlive their husbands, it is likely that 80 percent to 90 percent of women may need to take control of their finances at some point in their lives.
Women, whether single or married, might benefit from educating themselves on all aspects of household finances, including investments, insurance, and the beneficiary designations on retirement accounts.
(Charles Sims Jr. is president/ CEO of The Sims Financial Group. Contact him at 901-682-2410 or visit www.SimsFinancialGroup.com.)