A new study from Financial Finesse suggests that, in general, working women will need to save more—and at a much faster pace—than men to satisfy the average cost of expenditures in retirement.
The analysis found a 26% gap in the shortfall between men’s and women’s retirement savings. The analysis included a look at median incomes, deferral rates, retirement savings, life expectancies, and projected health care costs to determine how much the median 45-year-old man and woman would need to save in order to replace 70% of their income in retirement.
Further analysis revealed a “purchasing power” gap of 95% between men and women in terms of extra dollars needed to fund retirement expenses. Greg Ward, director of Financial Finesse’s Think Tank, who is based in Hickory, North Carolina, explains that, using data from the Bureau of Labor Statistics’ Consumer Expenditure Survey, Financial Finesse found the average expenditure for someone age 65 or older is around $45,000 today, so 20 years from now, assuming a 3% rate of inflation, it will be about $78,000 per year.
“Looking at how much the median 45-year-old man and woman have saved and are contributing, right now neither men nor women are on track to have enough to meet the average expenditure, but the shortfall for women is substantially greater,” he tells PLANADVISER. The analysis found the median 45-year-old man is projected to have a shortfall of $267,233 in savings to meet average retirement expenses at age 65, compared to a $522,262 shortfall for the median 45-year-old woman.NEXT: How plan sponsors and advisers can help
“We have seen a lot of studies that indicate employees in general, and especially women, trust employers for education and advice, in some cases more so than the financial services industry as a whole,” Ward notes. “So employers are uniquely positioned to help women identify the need to save aggressively and the obstacles they face.”
Financial Finesse also found what it calls a “confidence gap.” For example, men are more likely than women to express confidence that their investments are allocated properly (48% of men vs. 34% of women). Similarly, men showed more confidence in their decision making related to general investment knowledge (84% of men vs. 67% of women), having an emergency fund (63% vs. 48%), and paying off debt (67% vs. 50%).
Ward says this shows there is a great opportunity for retirement plan sponsors and advisers to provide financial planning, as well as retirement planning to employees, and especially to women. “Women have a tendency to take advantage of [financial wellness] benefits when available,” he says. “It helps to close the retirement savings gap as well as the confidence gap. Money management is so important; sponsors and advisers should make sure employees have this foundation under control.”
According to Ward, women tend to learn well through collaboration, so plan sponsors and advisers should consider a workshop environment that allows hands on work with colleagues. He adds that providers have some great information in writing and online, but if it is not personalized and not written in such a way that relates to women, it won’t be as helpful. Women want less jargon, Ward notes.
Women like face-to-face advice as well, so Ward suggests advisers understand and speak the language women can relate to. “If you’re talking about accumulating wealth and rates of return, that doesn’t resonate with women as much as men. Talk about quality of life, independence, and time with family,” he says.
A summary of Financial Finesse's findings can be viewed here.