Retirement Scare: Listen Up Ladies!

Women and Investing for Retirement

If you have been following me the last 7 years, you will know this is not the first time I have talked about women and retirement. As a matter of fact, I bring it up whenever I can because the facts are just so alarming.

* Women live an average if 5-7 years longer than men
* Women Earn 25-33% less than men
* Women Take an average of 11 years out of the workforce to have children and care for others (which sadly often bankrupts them).

Therefore, women have different investment needs and retirement savings needs than men. Our Women’s Money Corner addresses all these issues.

What does it all mean to you and why should you be worried if you are a woman? And trust me YOU SHOULD BE WORRIED.

If women want to maintain their middle class life style in their retirement, then they should have invested $50,000 in their retirement account by age 35. Men on the other hand, to maintain their status quo later in life, need only around $15,000 because they make more money later and will live fewer years.

So how many of you ladies out there have reached that goal or are planning to? I would venture to guess, not very many. The women I know making $50,000 a year (a solid middle class income and the average 2005 household income in the US) are barely able to squeak by in San Francisco and often find themselves $50,000 in debt with $0 in savings. Same goes for other big cities, like Los Angeles, San Diego, New York, and Chicago.

Obviously metropolises do not provide an unbiased selection of individuals, however I have contact with women all over the country (yes, in small towns too) and I would guess that only a fraction have saved this amount by age 35. In fact, I would bet women don’t start saving any money until their late 20’s and early 30’s. If you weren't aware, there is a negative savings rate in this country, which means Americans in general spend more than they make.

Most of the money women do manage to save usually goes into an IRA and 401K. I would guess the average amount a woman, who is committed to saving and investing in her twenties, is around $2,500-$5,000 a year. This still is not enough to get them to that awfully large $50,000 number by 35 years old, even if they started at 28.

This period (28-34) is the time women are most likely to be married and start having children, so their lives become more serious and focused on long term goals. This is also the time women college graduates may have paid off part of their student loans and are ready to think about investing. That is if they only received an undergraduate degree.

The average student loan debt for undergraduates is around $20,000. Those with advanced degrees can find themselves in up to $100,000 in debt and are looking at a 20 year stretch or more to cover the payments. They also have taken 2-4 additional years out of the workforce. The average MBA debt is around $65,000 and obviously more for 3 or 4 year programs like Law or Medical School.

Women are much more likely to carry student loan debt because they graduate at a higher rate from college than men. They also forgo the work world after high school and finish their degrees sooner (40% vs. 33% of men graduate in 4 years). Women now make up about 50% of Law and Medical Students, yet rarely fill such role as Partners and Judges that carry a high salary.

In 2005 women received 57% of bachelor’s degrees and 59% of Master’s degrees, however, not as frequently in the higher paying fields such as business and technology.

This is part of the reason I have been an Advisor for The Women’s Technology Cluster. Since women only receive 5% of Venture Capital Investment, they often need assistance breaking into the networks and learning the business skills to thrive in a venture funded company.

One more reason women in general may carry more debt than a man is because she is more likely to apply for financial aid. The American Council on Education says that in the last 10 years, many more women than men, who come from households making less than $30,000 a year, attend college.

According to the U.S. Department of Labor, women 25-34 earn 85% of men's salaries, and that gap increases with age. Women therefore spend more of their salaries paying off debts (versus investing). In 2004, in this age group, 23% of women with bachelor's degrees spent over ten percent of their income paying off student loans, while men only spent 16%.

In general, women incur more college debt than men, yet aren’t making as much money to pay off their loans. Even for the same job, women still earn less money. This is part of the reason a woman starts investing for her future so much later in life than a man.

With all this red ink from their student loan debt looming over them, and their salaries remaining relatively low in general, women aren’t thinking too much about their retirement(especially in their twenties). That $50,000 figure they should saved by age 35 appears a cruel joke. They need to be saving more than men for retirement, but it feels so difficult because they carry more debt and earn less money. This means they have to be more diligent about it than men and really rethink the way they live their life.

Look at the chart at the bottom to see why saving $5,000 a year from age 25-59 will allow a woman to live in middle class style with an inflation adjusted income of $50,000 a year for 30 years (from age 60-90). This is pretty amazing. To have a terrific cash flow like $50k coming in every year for 30 years in retirement. Something every woman should be aiming for.

I have to ask myself this question. Why are so many of my very successful and well educated single (or even married) women friends having so much difficulty making their financial lives work? Besides the reasons described above, I believe their spending habits contribute to the problem.

These career-minded women have spent a lot of time, money and energy to craft their perfect image of success. They buy designer clothing, spend top dollar on hair and makeup, eat out at the best restaurants, vacation in exotic places, and drive expensive cars. They look, feel and act like celebrities, except they don’t have the income to support the expensive habits. Instead they rely on credit cards to make up the difference. Women in general carry more credit cards than men and tend to leave a balance. As a result, the high interest fees add more to their problem and widen the gap between financial security between men and women.

If you look at the typical millionaires, it isn’t who you think it is. They aren’t wearing fancy clothing and driving the latest sports car. Typically they are:
* Not very fashion conscious (I put myself in this category since I refuse to spend gobs of money on clothing - in fact I am wearing a pair of very comfortable used jeans my neighbor gave me this week)
* Practical (for example; drive the same car for 10 years – I owned my previous car for 11 years and my recent one for 8 years and bought both used)
* Accomplished yet doesn’t drive herself over the edge with work. Stress can take its toll in creating expensive habits that are hard to break and cause a slew of health issues that take a toll on the pocketbook (and ability to work).

The point I am trying to make is that women have a serious problem and I would venture to guess most of them don’t even know it. They just can’t afford themselves and are heading for a collision course to poverty, unless they start saving TODAY.

In 2005, men age 65 and over had an average income of about $30,000 while ladies brought in around $15,000 a year. Ask yourself this, could you live on $15,000 a year? College students barely live on this and they often share a tiny dorm room and survive on a lot of cheap fast food. An unhealthy diet is not something a senior citizen wants to be subject to when maximizing their health opportunities is a top priority. College students also aren’t thinking what their insurance co-pay is going to be for their prescription medicines.

In 2005 Retirement Confidence Survey (sponsored by the Employee Benefit Research Institute and the American Savings Education Council) only 20% of women stated that they were very confident that their retirement savings would last throughout their retirement. If your retirement money doesn’t last, then what will you do?

If women put away $100 a month from the time they were 25 years old, they would have a million dollar nest egg at 65. (Based on a 12% return - which means ladies you have to start taking a little risk and get those funds out of low paying bonds and into some smart stocks). If women wait until 30 years old to start investing they will have to put in $200 a month to have the same amount at 65. That is twice as much if they waiting only 5 years. Quite the incentive to start early isn't it?

$100 a month doesn’t seem so bad does it? Who can’t spare $100 a month? If you see chart)

If we put a 3% average inflation rate in our handy dandy inflation calculator we see that in today’s dollars, $1M is only worth $295,712.29.

The average women will live around 15 years in retirement after age 65, so that means she will have about $20,000 a year to spend. With life expectancy increasing, soon that same money might have to stretch 25-30 years. I think of my two maternal grandmothers, in their 80's (who outlived their husbands)and still seem to have many vibrant years ahead of them without requiring nursing care. Luckily they have some income coming in so they won't be a burden on their family. However, this is more the exception then the norm. If they required nursing care it would be financially difficult for everyone because of the exhorbitant costs associated with it.

This $20,000 a year figure I mention above (or the $15,000 a year that is the average for women now in retirement), doesn’t allow much room for unforeseen circumstances, such as needing expensive nursing care, which is highly likely for most women after 80. If this happened it would shatter any beautifully nurtured nest egg in just a few years. Very sad.

The average daily cost of a private room in a nursing home in the United States is $70,080 a year, or $192 a day, according to the 2004 MetLife Market Survey of Nursing Home and Home Care Costs. In 40 years you can expect that cost to be at least triple. Now you can imagine where all your money will go. If you want to be fully protected I highly recommend looking at long term care insurance. It is expensive, however I would rather pay the money up front, then worry about not having enough at the end of my life. You can read more about long term care insurance in our article titled "How Much Money Do You Need to Retire?"

You might think that if you are married that your problems will be solved because your husband’s savings will help you survive. I will dispel that myth right now. In 2000, only 40% of women over 65 were married, compared to 74% of men. Single women in this demographic are most likely to be living in poverty. Every decade our average life expectancy increases. The over 85 group is expected to double in the next 30 years, which means that the amount of elderly women living in poverty will increase dramatically also.

Those odds don't seem good to me, and never being much of a gambler, I would rather rely on myself for the future than on someone else's income or charity that can be rather unpredictable.

So ladies, I hope you were paying attention, because regardless of your age, you can take control of your financial future and live your golden years not only in dignity, but also with beauty, grace and financial freedom.

If you don't have the money right now to start putting away, don't worry, by making some life adjustments and reading my free eBook, Live Your Life at Half the Price you should have plenty of money to invest in your retirement and make up the difference from not starting ealier at the young age of 25.

For additional reading about Women and Investing on the MsMoney.com website:
The Female Finance Factor

Face Your Financial Fears

On Being a Woman - How Our Differences Shape Our Investment Techniques

Out of the Supermarket and Into the Stock Market

Risky Business: Don't Let Fear Keep You Out of the Game

Going Clubbing: Laugh, Eat, Make Money--What Could Be Better?

CFO of the Household: A Job with Limitless Growth and Opportunity

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Retirement Savings Chart

Retirement Estimations
Inputs
Required Yearly Income During Retirement Years(Current Dollars)
$50,000
Required Yearly Income (Future Dollars - Inflation Adjusted)
$136,595.26
Number of Years Until Retiring 34
(based on ages 25-59)
Number of Years After Retiring 30
(based on age 60-90)
Annual Inflation (on Required Income)3%
Annual Yield on Balance 7%

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Your $5,000 a year investment after 34 years will yield a
$2,488,824.21 Nest Egg at age 60

Year Beg Bal Withdraw Interest End Balance Age
1 2488824.21 136595.26 164656.03 2516884.98 60
2 2516884.98 140693.12 166333.43 2542525.29 61
3 2542525.29 144913.91 167832.80 2565444.18 62
4 2565444.18 149261.33 169132.80 2585315.65 63
5 2585315.65 153739.17 170210.35 2601786.84 64
6 2601786.84 158351.34 171040.48 2614475.98 65
7 2614475.98 163101.88 171596.19 2622970.28 66
8 2622970.28 167994.94 171848.27 2626823.61 67
9 2626823.61 173034.79 171765.22 2625554.04 68
10 2625554.04 178225.83 171312.97 2618641.18 69
11 2618641.18 183572.61 170454.80 2605523.38 70
12 2605523.38 189079.79 169151.05 2585594.64 71
13 2585594.64 194752.18 167358.97 2558201.44 72
14 2558201.44 200594.74 165032.47 2522639.16 73
15 2522639.16 206612.59 162121.86 2478148.43 74
16 2478148.43 212810.96 158573.62 2423911.09 75
17 2423911.09 219195.29 154330.11 2359045.90 76
18 2359045.90 225771.15 149329.23 2282603.98 77
19 2282603.98 232544.29 143504.18 2193563.88 78
20 2193563.88 239520.62 136783.03 2090826.29 79
21 2090826.29 246706.23 129088.40 1973208.46 80
22 1973208.46 254107.42 120337.07 1839438.11 81
23 1839438.11 261730.64 110439.52 1688146.99 82
24 1688146.99 269582.56 99299.51 517863.94 83
25 1517863.94 277670.04 86813.57 1327007.47 84
26 1327007.47 286000.14 72870.51 1113877.84 85
27 1113877.84 294580.14 57350.84 876648.54 86
28 876648.54 303417.55 40126.17 613357.16 87
29 613357.16 312520.08 21058.60 321895.68 88
30 321895.68 321895.68 -0.00 -0.00 89

(These are just an estimate taken from the retirement calculator at www.banksite.com ... please don't plan your future on this chart or any other similar tool. You should work with a certified financial advisor.)