If many American women don't act quickly, their golden years may be anything but. I recently discovered some alarming statistics in an ominously titled report, "The Female Factor 2008: Why Women Are at Greater Financial Risk in Retirement":
- Women earn $0.77 for every dollar men earn. Over time, that earnings shortfall translates into a median retirement income for women that's just 58% of men's.
- Women stay in the workforce an average of 12 years less than men do, As a result, they also end up with fewer years saving or participating in an employer-provided retirement plan.
- A typical 25-year-old woman with a college degree will make $523,000 less in wages over her lifetime than a typical college-educated man will. As you might imagine, that will lead to considerably less in retirement savings.
- More than 10% of female retirees and 20% of single women older than 65 live on less than $10,000 per year. (Yikes!) The average Social Security benefit for women is $800 per month, compared with $1,177 for men.
So what's going on? Well, women are still earning less than men are, for starters. And they're in the workforce for fewer years, typically because they take time off to raise children or care for parents or others. Making matters worse -- even though it should be a good thing -- women live longer. Less money to retire on and more time to live off your little nest egg is not a great combination.
As Cindy Hounsell, President of Women's Institute for a Secure Retirement (WISER), put it, "Simply being a woman in our society may jeopardize your financial security."
The good news
Fortunately, all is not lost. Unless you're already 82 and facing foreclosure on your home, you can probably improve your situation considerably -- if you act soon:
- Educate yourself about financial matters. Doing so is not as boring or intimidating as it may seem. (It can help to form an investment club with other women, where you share what you learn and answer each other's questions.)
- Save and invest as much as possible for your golden years. Saving 10%, as many are advised to do, often isn't enough, especially if you're starting late or don't earn much. Use a retirement calculator or two to try, and figure out how much you need to amass and how you can get there. Tap the services of an advisor, if you need to.
- Invest as effectively as possible. Many women tend to be overly cautious when investing, because they don't want to lose any money. But you need to take on some degree of risk to earn better returns. Over nearly all long-term periods, stocks have outperformed bonds, for example. You can easily match the overall stock market's performance with a simple index fund.
- If you want to aim higher, consider some solid mutual funds. The Winslow Green Growth (WGGFX) fund, for example, sports a five-year compound average annual return of 18%, even despite falling more than 20% so far this year. Its top holdings recently included First Solar (NASDAQ:FSLR), Bankrate.com (NASDAQ:RATE), Chipotle Mexican Grill (NYSE:CMG), and Whole Foods (NASDAQ:WFMI).
- You might also consider one kind of vehicle mentioned in the report: lifetime annuities. (The folks at WISER also support some proposed legislation: the Retirement Security for Life Act, which would provide a 50% tax exclusion on income from a lifetime annuity, up to $20,000 per year.)
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