Requiring employers to open up workplace retirement saving plans to part-time workers also could help. Another good idea: improve the Saver’s Credit, which is a nonrefundable tax credit up to $1,000 for low-income workers ($2,000 for couples) who contribute to workplace plans or IRAs. Many policy experts would like to see the credit made refundable–currently it is not available to workers who do not have a federal income tax liability.
Reforms in the long-term care insurance market are long overdue and would benefit women disproportionately–they often play the role of primary caregiver themselves and outlive spouses. Policy ideas are emerging that would make private long-term care policies easier to purchase and, perhaps, less expensive.
Steps Women Can Take
Women who don’t want to hold their breath waiting for the policymakers to improve things can take meaningful steps on their own to close the gap.
Optimizing Social Security tops the list, and most married couples will benefit by doing joint planning that assumes a longer-lived female spouse. A wide array of spousal and survivor strategies can be leveraged, usually involving delayed filing by the higher-earning spouse.
It’s tough to beat the return on a delayed filing credit; it translates into roughly 8% higher monthly benefits for each year of delay from age 62 to 70–risk-free. Once you do file, cost-of-living adjustments are awarded annually, and you will receive a COLA for the years that you delay.
Single women should also consider strategies for delayed Social Security filing–either by working longer, or funding the early years of retirement from saving.
In all cases, it pays to run the numbers. Help is available from a variety of sources.
Save more if you can, of course. If that’s difficult due to competing demands on your income, keep in mind that you may be able to play catch-up in the years just before retirement. Contribution limits for tax-deferred retirement accounts are higher after age 50, and it’s entirely possible to make headway.
Rising Value of Advice
Women can also consider hiring a fiduciary fee-only planner with whom you are comfortable and can trust. Studies show that women don’t trust advisors, or don’t feel that they are speaking their language.
A telling statistic: Pershing LLC research found that 70% of women fire their advisors within one year of a spouse’s death. A study by the Center for Talent Innovation, focused on opportunities for advisors to serve female clients, found that 67% of women feel their advisor does not understand them–or is not interested in them. This trend holds true across all subsegments of the female market, irrespective of age and asset levels.
“Either women are unhappy with the financial advice they are getting, or simply don’t trust the person,” says Browne.
This is where the new fiduciary regime for retirement advice will help. The “best interest” standard that will apply to all retirement account advice should make it easier for clients–women and men–to feel confident about the advice they are receiving.
Do women need planning help more than men? Not from a financial literacy standpoint. The CTI study found no meaningful gender gap in financial literacy–but women are 44% less likely than men to consider themselves “knowledgeable” about investment and finance. That, in turn, leads to excessively risk-averse investing habits that needlessly hamper long-term returns.
By the way, all those “confident” men also are more likely trade themselves into lower returns. One research paper found that men are 45% more likely to trade stocks than women–and that their trading reduced net returns by 2.65 percentage points annually, compared with 1.72 percentage points for women.
How’s that for a gender gap?