Women’s
Financial Outlook

Half are positive about their
financial futures

American women are feeling more optimistic about their money prospects, says the recently released 2015 BlackRock Global Investor Pulse Survey. Just over half, 51%, feel positive about their financial futures, up from 46% a year ago. Forty-two percent are confident they are making the right savings and investment decisions, up from 34%.

Both women (43%) and men (41%) believe saving for retirement should be a high priority, yet only 55% of women and 65% of men actually make it one. Perhaps as a result, 75% of women and 68% of men worry about being able to meet their retirement goals.

“It’s clear that women need to become much more active in managing their money toward urgent long-term goals, particularly retirement,” says Heather Pelant, head of personal investing at BlackRock in San Francisco. “But our survey also indicates that women have some key positive financial instincts that can lend valuable support to their saving and investing efforts.”

Women tend to emphasize the day-to-day health of their household’s finances and paying off debt, while men focus more on investments. Sixty-one percent of women follow a household budget, and 55% are focused on paying off debt, but only 23% regularly review the performance of their savings and investments. On the other hand, 33% of men regularly review their investments, and 46% concentrate on paying down debt.

Men also put a greater emphasis than women on growing their wealth (35% vs. 28%, respectively), holding onto their wealth (26% vs. 20%), considering themselves an investor (40% vs. 22%) and having less of their portfolio in cash (60% vs. 71%). Men are also more likely to say they enjoy managing their investments (46% vs. 26%). When asked how the idea of investing makes them feel, men are more apt to associate words such as “hopeful” and “optimistic,” while women most associated “nervous” and “risky.”

Interaction Is Key

Presence of an adviser factors into financial wellness

Employees who engage in multiple live interactions with a financial professional experience a much higher degree of positive behavioral change toward financial wellness than those who engage solely online, a new analysis from Financial Finesse suggests.

“Financial Finesse Year in Review: 2015” found that, overall, financial wellness levels increased only slightly, to 4.8 out of 10 vs. 4.7 out of 10 in 2014. Liz Davidson, CEO of the firm in El Segundo, California, notes that the changes in each category of financial wellness are small and the sample size is large. But, she says, the most significant variable is the difficult economic times. “Wages are stagnating; there is concern about market uncertainty, and there is more pressure on employees to fund more of their own benefits,” she says.

The analysis shows that while technology was helpful in increasing employees’ awareness of their financial vulnerabilities, online interactions alone did not improve financial wellness. In contrast, employees who had five interactions, including conversations on the phone or in person with a financial professional, showed substantial progress. For these regular participants, 98% contribute to their retirement plan, compared with 89% of online-only users; 48% are on track for retirement, compared with 21% of online-only users; and 64% are confident in their investment strategy, compared with 42% of online-only users.

A look at 31 key financial wellness questions reveals that the overall gender gap in financial wellness declined from 7 percentage points in 2014 to 5 in 2015. Davidson points out that 71% of employees who repeatedly used their financial wellness programs were women, and this has probably contributed to narrowing the gap. “Women are more comfortable taking control of financial issues; it’s the early stages of social change,” she says. “We observe increased confidence.”

Seventy-one percent of employees chose retirement planning as a top concern in 2015, making it the most often cited one, but it was actually getting out of debt that topped the list of concerns for African-American (75%) and Latino (66%) employees. The presence of problematic debt may be affecting retirement preparedness, Financial Finesse concludes.

CIT Usage on the Rise: Wells Fargo announced it has experienced a 37% increase in the number of collective investment trusts being offered in retirement plans it recordkeeps and a 57% increase in CIT assets, from year end 2012 through year end 2015.

Lower Standards: Three in four U.S. employees (76%) expect their retirement years will not be as secure as their parents’, according to Willis Towers Watson’s 2015/2016 Global Benefits Attitudes Survey. Seventy-one percent believe Social Security benefits will be reduced, and 70% think government-provided health benefits will be worse.

Advisers Boost Confidence

More people are optimistic about their outlook

American workers’ confidence in their ability to retire comfortably, which hit record lows between 2009 and 2013 before increasing in 2014 and 2015, leveled off at “very confident” this year.

The 26th annual Retirement Confidence Survey from the Employee Benefit Research Institute (EBRI), the longest-running survey of its kind, finds the percentages of workers who are somewhat confident increased and workers who are not at all confident decreased.

Twenty-one percent of workers are now very confident they will have enough money to live comfortably throughout their retirement years (statistically unchanged from 22% in 2015 but up from 13% in 2013). Forty-two percent say they are somewhat confident, compared with 36% in 2015 and 38% in 2013.

EBRI also found that the increase in confidence between 2013 and 2016 occurred primarily among those with a plan. Among those with a plan, the percentage of those very confident increased from 14% in 2013 to 28% in 2015 and is back down to 26% in 2016.

In contrast, the percentage of those describing themselves as very confident has remained statistically unchanged among those without a plan (10% in 2013, 9% in 2014, 12% in 2015, and 10% in 2016). Workers without a plan are more than three times as likely to say they are not at all confident about their financial security in retirement (11% with a plan vs. 38% without).

For plan sponsors, the top takeaway is that confidence in retirement continues rebounding since financial crisis, says Luke Vandermillen, vice president at Principal Financial Group. “It’s no surprise that people’s confidence took a dip in 2008-09, and we’ve been crawling back since,” he says. “We’ve seen increases year over year since then, and 2016 is better than 2015.”

Picking apart the data, Vandermillen says, the top factor that drives confidence is whether or not someone has access to a retirement plan, either through an employer or by using an individual retirement account (IRA). Next, people who spoke to an adviser are more confident than those who did not.

According to EBRI’s data, 53% of retirees who spoke with an adviser are very confident about retirement.

Health Care Cost Projections

Costs are expected to increase 6% to 7% a year

The “Guide to Retirement: 2016 Edition” from J.P. Morgan Asset Management provides a range of insights about what financial challenges individuals should expect in retirement, including hard figures on Medicare premiums, long-term care costs and other critical aspects of retiree health care.

Reading the guide will be a troubling experience for anyone not already versed in the retirement challenges faced by workers in the U.S., notes J.P. Morgan Asset Management Global Head of Retirement Solutions Anne Lester in New York City. “A lot of the numbers we cover are going to be discouraging for a lot of people to read,” she says.

For example, a 65-year-old in 2016 should now expect to pay upwards of $4,660 per year on health care, and that is just at the median. This includes $400 for vision, dental and hearing care; $1,900 on Medicare “Medigap” Plan F; between $900 and $4,000 on Medicare

Part D premiums and prescription out-of-pocket costs; and another $1,460 in Medicare Part B coverage.

“And these are just the predictable costs,” Lester warns. “There will be additional premiums per person for families with modified adjusted gross income above approximately the $85,000 threshold. And then there are the true uncertainties of things such as health care inflation, Medicare solvency issues, long-term-care needs, etc.”

Chief Retirement Strategist Katherine Roy, also in New York, predicts that, should current demographic and pricing trends hold, health care costs will inflate 6% to 7% per year through the 2020s and 2030s. “Projecting the current numbers forward, that would mean the individual turning 65 today would be paying $18,000 per year for health care by age 85.”

Derailed: More than three-quarters of Americans—76%—fear that poor health could be their largest barrier to retirement savings, followed by illness in a partner, cited by 61%.

Savings Begets Savings

Conversely, those who don’t save fall down on other measures

LIMRA Secure Retirement Institute found consumers who save for retirement are more likely to save for other goals.

Institute research looked at workers between the ages of 20 and 59 with household incomes of at least $50,000 and found that more than 70% are saving for retirement at work, outside of work or both. For retirement savers, it is not a zero-sum game where saving for one purpose means the exclusion of others. The most popular reasons to save, other than retirement, include emergency funds, vacations, taxes and education.

One in five workers says he does not contribute to his employer’s defined contribution (DC) plan because of other savings priorities. Yet, the research indicates that saving for other things tends not to be the reason people fail to save for retirement.

The research found that 39% of those saving for retirement also save into an emergency fund, vs. 20% of those not saving for retirement. More than one-quarter of retirement savers are also saving for vacation/travel, compared with 15% of those not saving for retirement. Retirement savers also save more for taxes (23% vs. 14%) and education (22% vs. 13%).

There is no conclusion from LIMRA as to whether these findings reflect income differences between retirement savers and those not saving for retirement, or just either group’s habits.