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When Women Make Dangerous Assumptions

The excuse that you will simply work longer has taken a dangerous position in the retirement plan for women, as a TransAmerica Retirement survey recently revealed. Granted, this is the new recovery plan among a great deal of respondents, of both sexes. But for the female worker, this can be the wrong approach to a retirement plan.

The study, just published, suggests that women have the advantage of living longer yet at the same time, are still in a worse position than men to finance that longer life. Only 6 percent of those who have a retirement plan confidently say they can retire comfortably—although the survey doesn’t pinpoint whether this is at what we consider regular retirement age or beyond.

That plan, a strategy that encompasses all aspects of retirement planning, from asset allocation to savings to debt reduction to preparing for a long life with healthy alternatives, now is not in place for 54 percent of the women surveyed. Only 7 percent suggested that they have some plan in place, a written road map of what to do when. We talk a lot about the need for this sort of strategy, understanding that a plan is actually the ability to embrace the worst that can possibly happen and readjust how they approach money.

Perhaps the most startling statistic to emerge for the study is the belief that 19 percent of women do not plan on retiring.

No one disputes that this is a problem. But the unforeseen is more probable than many of these women realize. In fact, this sort of plan fails for half of the people who make this sort of assumption. There is a bright side to this: women have increased their presence in the workforce and they understand that they need to save more, invest more, and work more. Yet they still opt for part-time work or chose professions that do not offer the highest pay. According to the Retirement Security Project sponsored by the Pew Charitable Trust, women close to retirement have about half as much as men in their 401(k) plans.

While we can’t expect companies to return to the days when defined benefit plans (pensions) ruled the landscape, a time when women were not only able to get a predictable and fixed amount of income that they could plan on and the added bonus of assuming the benefit of a deceased spouse, women can do several things to help change that potential outcome.

Even if they are not investing enough (and both studies cite the numerous reasons why this might be: not having enough education, not taking enough risk when they do participate, not estimating with any accuracy how much they will need when they retire) they can lobby to have their 401(k) plans offer a lifetime-annuity option. This is beneficial in part because it does deliver a projection of what the retiree can expect when they decide to stop working.

It is also advantageous for women in another way. At retirement, 401(k) plans often send the newly retired worker packing with a lump-sum payout. To take the money and a purchase an annuity, a form of investment and life insurance plan that pays a fixed amount, the monthly payout is determined by the potential life span you have remaining. This means a lower monthly benefit than their male counterpart might receive.

Spousal consent would be a nice touch as well. Currently, how your husband decides his distribution at retirement does not require them to consider a wife’s needs. If the requirement to get a signature from a spouse when this important decision is made would go a long way in prompting men to consider the taking the lifetime annuity with survivor benefits.

There are several things women can do now while they wait for legislation to provide the opportunity to contribute to an IRA when taking time off as a caregiver (currently its no income; no contribution), increase the Saver’s credit (available to households that make less than $54,000 a year), and spread the auto-enrollment net to include more employees in 401(k) plans and sooner and including the opportunity to be auto-enrolled in an IRA in places where there is no employer sponsored plan.

The TransAmerica study found that women will miss their retirement goals by about 25 percent. So what can women do now?

The simplest thing to do is educate yourself about the opportunities. It might come from your employer, it might come from a financial planner, and although women still rely on friends and family to provide investment advice more than men, the importance of getting some help if you are unsure is key to understanding the potential problems that face them.

Increasing their retirement investments will go a long way in getting them to the potential of retiring. Women are not the only ones who are putting off retiring at the age of sixty-five. But women have better reasons to wait to tap their Social Security benefits. As a widow, you will only be entitled to half of what your husband received from SSA. This can be a devastating reduction in income at a time when the household assets may have been drawn down significantly with old-age medical issues.

Embrace the worst-case scenario and adjust your current lifestyle to accommodate it. If you have college-aged children, do not spend one dime of your retirement income to help finance their education. If you haven’t saved for this moment in advance, tapping retirement accounts is not a viable answer. Avoid hardship loans from your 401(k) plan. Keep in mind that bankruptcy does not include your retirement accounts as part of your assets.

Even though a longer life might seem like a benefit, unless you take into account the increased chance that it will be lived in poverty while you are still working, it will turn into something quite unexpected. Make sure your husband is involved and if you have older children, involve them as well.

By Paul Petillo, managing editor of