My Blog, Your Money

I recently read an article about a Hewitt study which found that women aren’t saving enough for retirement (not that all men do either).  I don’t think it’s much of a shock that Americans aren’t saving enough (as evidenced by the recent negative savings rate), but I never really gave much thought to the fact that women especially weren’t saving enough compared to men.

Orphan Annie and Daddy Warbucks

Some of the reasons cited were women’s tendencies to:

1. Earn less income and live longer – Both of these are widely accepted facts, but this was the first time I made the connection between these tendencies and the downstream impacts on retirement.  Assuming there isn’t much of a difference between the retirement ages for men and women and since women live longer, they will have more years of retirement (22 years vs. 19 years for men).*

2. Invest less aggressively – Nothing new here, women in general are more risk-averse while men are more aggressive with their investments.  It is also widely established that the greater the risk, the greater the reward.  So men come out ahead while women end up with less.

3. Start saving later and spotty saving behavior – So even though women live longer and thus have more years of retirement, they save for a shorter period of time.  Not good combination.  Time is your friend when it comes to growing retirement savings.

The study offers this advice to close the gap:

1. Start saving/investing more and earlier – Everyone should do this.

2. Retire later – This is pretty self-explanatory.  It just counteracts the whole living longer thing.

3. Take advantage of advice – I’ve noticed that when I’m with my guy friends and we chat about personal finance topics, I usually talk about stocks, options, industry trends, real estate, etc.  But when I’m in the company of gals, the only advice they have to offer is tips on how to budget and save money.  Being the personal financial advocate that I am, I would then encourage them to invest in stocks, but I always get shot down as they cite a lack of know-how as a barrier.**  I’m not alone in noticing this either.  Ramit Sethi of I Will Teach You To Be Rich wrote an entry a while back entitled “Look how men’s and women’s magazines write about money” where he notices how men’s magazines provide more solid investing advice.  I guess the point I am trying to make is: if you don’t know much about personal finance (which is more likely if you have 2 X chromosomes), then go out and seek that information.  Ignorance may be bliss, but it also may be living in a cardboard box in the street.***

4. Keep money invested in 401(k) plans – I know it may be tempting to cash out your 401(k) when you leave a job, but you have to resist that temptation.  The penalties you incur make it a terrible deal.

Actually now that I look at that list again, I think everyone can benefit from each of those points with the exception of number 2.  And regardless of whether you’re a Mr. or a Ms./Mrs., everyone can benefit from being smarter with their money.  I think this study just highlights that women in particular need to get more involved.

* There was no mention of the effect of assets a widow would receive from a husband that passes away.  I wonder how that affects the study’s findings.

** This is not always the case, just a pattern that I noticed.  After all, my mom is the one who got me into stocks.

*** May be a slight exaggeration.