Regardless of Risk Tolerance, Women Need to Save More

In a Bank of America (BofA) Merrill Lynch Webcast focused on women and retirement, the idea was broached that women simply need to save more money than men for several reasons.

During “Women & Retirement: Investing for the Life You Want,” David Bach, author of Smart Women Finish Richer, said that if people in general are being urged to defer 10% of their paychecks to a retirement plan, that figure should really be 10% for men, and 15% for women.

Sallie Krawcheck, President of Global Wealth & Investment Management for BofA, outlined three challenges women are facing that support Bach’s assessment. First, women live about five to six years longer than men and will need to be able to fund those extra years. Bach said another way to think of this age discrepancy is that women will live about 15-20 years on their own, considering women tend to marry men older than themselves.

Second, women have less money saved than men. This may very well change down the road, but for women retiring today and for some time to come, Krawcheck said retirement assets for women are about two-thirds less than men.  This makes sense considering women, on average, earn 75% less than men do. As soon as a woman leaves the work force, her earnings drop 16%, she said – if they’re out of the work force for three years, there is a 50% decrease.

The third challenge women are facing is their tendency to be more conservative investors. This has served them well for the past decade, but overall, the concept of higher risk/higher return holds true, Krawcheck said, and in order to make up for the shortcomings in returns, they need to be setting more money aside.  Women will need stronger savings accounts especially as the burden of retirement is being place on the individual; retirees today get 70% of their income from Social Security and defined benefit plans, but in years to come, those sources will contribute about 30%, she said.

 Major changes  

Those are the challenges women face – but the Webcast made it clear that things are changing drastically.

Hannah Rosin, contributing editor for The Atlantic, referred to commonly cited statistics – 58% of college graduates are female. Fifty-four percent of professional and managerial jobs are now held by women, she said. While these figures may be tossed around frequently, people are yet to accept what this will mean for society’s future.

“The job market has been standing at the top of the mountain saying, ‘You need a college degree!’ and women were listening more than men,” said Rosin.

Bach echoed this by saying today’s entrepreneur is a woman – they are starting businesses 2 to 1 compared to men. And they are becoming more accustomed to managing money.

“Fifteen years ago, women were starting to learn how to manage money. And once they start managing their family’s finances, they will never turn it back over to the men,” he said, adding that women are more frequently becoming the household CFO and CEO, making 80% of purchasing decisions.  “Women are living longer, going through divorce, inheriting wealth, and coming to a realization that they need and want to manage their money.”

Kay Koplovitz, founder of the USA Network and Chairman of the Board for Liz Clairborne, Inc., understands the entrepreneurial spirit of women very well. She said she credits Title IX with many of the changes we’re seeing today. “It wasn’t just access to sports as most people think of it; it was access to med school, law school, engineering school.  Quotas were very low before Title IX, about 5%. That has changed; education has changed lots of things,” she said.   

 Learning the ropes 

Koplovitz founded Springboard Enterprises to support female entrepreneurs.  Through this organization, she said she see that many women becoming more comfortable with the idea of risk in investments.  “Women are very good at risk-taking when they learn the ropes. They feel comfortable doing it together,” she said.

Bach has had similar experiences at workshops based on his book. “When you have 100 women in a room learning about money together, you have an instant community,” he said, “and often what happens is they’re willing to share their fears, ask for advice from each other… it’s totally different when men are included.”

Too often, women don’t actively manage their finances until a traumatic event, such as a divorce or the death of their husband, said Krawcheck.  She said women need to take control of their finances earlier in life – they need to start saving earlier, saving more, and being more aggressive. She noted that as someone who’s been in a managerial position for many years, she has found that men ask for raises 50 to 1 compared to women.   

Rosin said she has seen men ask for raises more frequently than women in the media industry as well, saying it is still culturally frowned-upon for a woman to be aggressive. “They don’t have to be men, but they can find their own way to ask for a raise and not have to go completely beyond their comfort zone.”   

 What is the role of the industry?  

Charles Gibson, former anchor of ABC News, was moderating the discussion and pointed out that 63% of women are worried they will outlive their assets, whereas only 52% of men have this fear. In 2007, the average woman had $56,000 in her 401(k) – men averaged $95,000. He asked the panelists what role the financial services industry should be playing to alleviate these fears and how it can help women become more prepared for a secure retirement.

The panelists listed off several products that can be hugely helpful; long-term care insurance, annuities, life insurance, etc. However, Krawcheck said the best thing a woman can do to improve her financial situation is to work with a financial adviser. Bach said he spent nine years as a financial adviser and said women make better clients than men.

“When a woman comes in to make a financial plan – she can bring her husband, that’s fine – but she will stick to the plan. She will come in for quarterly meetings, review the plan, and won’t panic when markets collapse – men panic at market collapse, they call and say ‘I want to sell’ or ‘I got a great tip at the golf course.’ Women never say they got a great tip at the gym. It never happens!” said Bach.

He continued by saying women plan better, and they make referrals 3 to 1. If a man does well and has a financial adviser, he’ll take the credit himself, Bach said. If a woman does well, she’ll say it’s because she has a great financial adviser.

 Room for improvement 

Gibson asked Krawcheck about the demographics of financial advisers at Bank of America, ballparking that there were about 15,000 advisers for the company. Krawcheck said 84% of them are men.   

She said the points Bach made about women being reliable clients are true; women tend to take longer in choosing an adviser, but once they do, it will be a longer relationship, they trade less, and they stick to the plan.

Gibson asked why would women take longer at choosing an adviser than men. Bach said it’s because women are better “BS detectors” than men – women want an adviser they can trust, not one who is trying to push a product on them.  He said male advisers are being “retrained” to think more about “life planning” when working with women.

Krawcheck agreed, and said building trust is crucial when working with women; however, do not present them with a pretty package tied with a pink ribbon. Women want the truth so they can plan accordingly. And only one-third of women would prefer to work with a female adviser – the gender relationship does not matter as much as a relationship built on trust, she said.  

Gibson pushed Krawcheck as to why 84% of advisers at BofA are men, if one-third of women would prefer a female adviser. She said the company is working on it, but it’s challenging. As with many industries, women enter financial services one-to-one with men. But through the course of their careers, women tend to leave the work force; they might make it through their first child and first plateau of their career, but when it comes time for a second child, that second career plateau is harder to reach.