Although it's a common assumption that women lag men when it comes to planning for retirement, women actually seem to be doing all the right things in retirement saving and investing, says Amy Cribbs, principal with Vanguard Participant Experience, the firm's institutional investment advisory arm.
When eligible, women are slightly more likely than men to join their company's retirement plan, and much more likely to join at certain income brackets. Women's average deferral rates are higher than men's in every income bracket, but especially in the higher brackets. Their average asset allocation is very similar to that of men. And, on average, they don't take any more loans than men do, Vanguard data show.
Cribbs advises retirement plan administrators to court women with automatic enrollment, automatic deferral increases, and a balanced default fund to build early confidence in their investing abilities.
Despite all this, women as a whole have far fewer retirement dollars. The fact that women also tend to live longer than men further compounds the challenge—lower savings means many women must do more with less over a longer time span. Women also remain more likely to be single parents.
On an individual basis, there's plenty that women can do now to set themselves up for a more comfortable retirement, even on par with their male contemporaries.
Should women invest more aggressively? Not necessarily. A balanced approach typically fits both sexes. A longer average female lifespan may make products like target-date funds, which change their risk balance over time, appealing to some investors. But women tend to be more conservative investors when it comes to stocks and bonds overall than men, research shows. That means women may not be aggressive enough early on, when investors can typically ride out market swings.
It's okay to think of yourself first. At least when it comes to retirement savings. College savings is important, of course. But there are options like financial aid and scholarships, plus specifically designed tax-free 529 savings plans. Consider that you're not necessarily being a good parent if you exhaust your assets and have to hit up your adult children for assistance. No one is suggesting that women deny children a comfortable lifestyle, but mothers tend to turn any windfall into family money. Instead, women might think about rolling over bonuses or pay increases into their own retirement savings; automatic deposits may be the way to go.
Your biggest asset is…you. One of the biggest assets young professional women (men too, of course) have in their favor is the fact that they have several more years of income potential. Work-life balance is a constant juggle, but thinking about ways to keep pace with earnings increases (continuing education, consulting on a part-time basis to stay fresh if you step out of the workforce) is a vital part of planning. Disability insurance may make sense should you unexpectedly exit the workforce.
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Job hopping. Job changes often lead to higher income potential, but there can be collateral damage. The jumper forgets about an existing 401(k) or feels the urge to cash in an existing plan even if it means paying a penalty. According to Hewitt Associates, 49 percent of workers in their 30s cash out of 401(k) plans upon leaving a job. Women who enter and exit the workforce because of family considerations must keep tabs on retirement funds through former employers. Not sure of your next move? Roll over the 401(k) into an IRA, which you can then invest any way you want. Timing is key, too. Mothers (if they're a family's choice for child care) might be more likely to leave a job before vesting, or being eligible for full benefits, kicks in.
Job flexibility shouldn't mean lax investment. Contract work fits some women's lifestyles, but as CEO of yourself, you need to think about retirement. According to the Labor Department's Employee Benefits Security Administration, anyone receiving compensation or married to someone receiving compensation can contribute to an IRA. In addition, if you are self-employed, you can start a Simplified Employment Plan (SEP) or a Savings Incentive Match Plan for Employees of Small Employers (SIMPLE). As with other retirement savings plans, there may be tax consequences, and possibly penalties, if you withdraw your savings early.