Paying it Forward with Cold Hard Cash

A recent story on SHRM highlights the differences in how men and women invest. 

 The article points out that, according to analysis done by MassMutual, “women recognize the need for better asset diversification while, historically, men have demonstrated more aggressive investment behavior.” While the analysis of investment style based on gender was interesting, what really struck me was the statement that, “retirement plan balances for women continue to trail men by approximately 40 percent, and their deferral percentages continue to trail those of men by 0.5 percentage points.”

And other studies seem to find much the same. This past December, Wells Fargo released the results of a retirement planning survey (poll conducted by Harris Interactive, Inc) which focused on middle-class Americans spanning their mid-20s to those already retired and in their 60s. 

One of the key findings was that women shockingly underestimate what they will need, financially, in retirement. One rule of thumb is to calculate that you’ll need 70 percent of your pre-retirement salary to live comfortably. Of course, to be able to jet-set around the world, get a weekly mani/pedi and monthly massages, or manage unexpected medical issues, you’ll potentially need more than 100 percent of your pre-retirement annual income.

Now, I’m no Jean Chatzky, Suze Orman or even Dave Ramsey. My family can certainly attest to the fact that I sometimes like to fritter away my hard-earned cash on baubles and trinkets and fun stuff. But one thing I’ve learned, and truly try to live by, is the concept of “pay myself first.” I’ve always taken full advantage of retirement plans offered by my employers and it’s not just the HR-person in me that causes me to encourage others to do the same. It’s a reality that we ALL must “pay ourselves first” and plan as best we can for our post-working years. 

This is important for women and here are just a few reasons why:

• Women who retire at age 65 can expect, on average, to live another 19 years. That’s 3 years longer than a similarly situated man. Women who enter retirement as part of a couple may well be faced with ending retirement “single” and the loss of a spouse could mean the loss/reduction of some post-retirement benefits.
• With a divorce rate in the U.S. between 40-50 percent, women need to be aware of options that may be available to them under a qualified domestic relations order (QDRO) in the event of a divorce or legal separation.
• According to the U.S. Department of Labor, just 45 percent of working women (age 21 to 64) participate in a retirement plan. Of course, not all employers sponsor plans; the Employee Benefit Research Institute states that just 62 percent of employers do so.  And that makes it even more critical for working Americans to use other investment vehicles to save for their retirement.
• Women tend to invest more conservatively than men so it’s very important they carefully choose where and how to invest their money to garner the best return. Women (and men) can consider making catch-up contributions beginning at age 50, to 401(k) plans and other retirement accounts.

I know it’s often unimaginable for a 23-year-old worker to envision retirement when they’ve just started paying off student loans. It seems like common sense to resist making 401(k) contributions in favor of covering one’s right-now living expenses – pesky things like food, shelter and electricity.  

Whether you’re earning $25,000 or $100,000 a year, you need to treat your working years as your ‘wealth accumulation’ years. Put aside what you can. Put it to work and let your investments grow.

C’mon ladies (and gentlemen), pay it forward. To yourself. To your future.

Photo credit iStockphoto.com