Touchstone Television/Courtesy Everett Collection The income gender gap stretches well into retirement. At a time when work is supposed to wind down, many women may find themselves incapable of transitioning to an easier lifestyle. For starters, they simply don’t have enough money saved, a new Prudential report found, but they’re also more likely to care for a loved one or child in their older years, they don’t receive as much in government benefits (especially if they had to leave the workforce when they were younger) and they live longer, so they have to stretch the money they do have. On top of all that, women are taking on more debt -- student loan debt, mortgage debt or debt after a divorce or becoming a widow, said Janice Co, vice president and head of marketing and strategy at Prudential, and the author of the report, “Closing the Retirement Income Gender Gap.” Prudential did an analysis of its record-kept accounts for the report, as well as looked at external data from sources such as the Bureau of Labor Statistics and past surveys the company had done. “Women are in this perfect storm,” Co said. They are doing more tasks at home, they’ve got less time to even plan for retirement or to learn about savings.” Even though women need to save more money than men — because they’re expected to live longer and because they generally have higher average health care costs in retirement — female employees had less in their retirement accounts than their male counterparts (about one-third lower), according to Prudential’s report. They also are likely to be single in their older years — possibly because of divorce, widowhood or because they simply choose to be single — some 80% of men die married but 80% of women die single, according to the Women’s Institute for a Secure Retirement. Other challenges, according to the Prudential report, include the fact that women earn less, they may not have time to dedicate to retirement planning. More women were working in their mid-60s and later in 2015 (over 15%) compared with women the same age a decade before (8.6%) — they’re also more likely to end up in poverty. But there’s hope: women’s median lifetime income earnings are increasing (while men’s are decreasing) and women are expected to control a massive amount of money — they passed the halfway mark for controlled personal wealth in the U.S. in 2015, and by 2020 are expected to hold $22 trillion altogether.
Most people wouldn’t dream of going year after year without ever seeing a dentist for a checkup, whether or not they have any signs of trouble with their teeth. Yet they’ll leave thousands of dollars sitting in their retirement accounts for decades without so much as looking to see how well those investments are doing. It’s vital that you check on the status of your retirement investments at least once a year, even if you haven’t noticed any obvious problems.
Changing priorities call for changing investments
Early on in your career, the top retirement priority is typically to get as high of a return as possible on your savings. If you’ve got several decades to go before you actually need to tap into that money, you have the luxury of taking some risks in return for getting bigger rewards. Thus, stocks are the best choice for young workers choosing investments for their retirement contributions. But as you get older and start approaching the big day, your risk tolerance will drop. If a 30-year-old chooses a retirement portfolio that drops in value by 25% the next year, it’s annoying, but there’s plenty of time for the portfolio to recover its value and then some. If a 60-year-old has a 25% drop in his retirement accounts’ value, that’s a bit more than an annoyance.
It’s important to shift your retirement investments over to less risky assets as you approach retirement, which brings us back to the need for annual checkups. Part of your checkup process will be shifting how you allocate your contributions between stocks and the less volatile and less risky bonds. A formula that usually works well is to subtract your age from 110, and use that result as the percentage of your retirement investments that should be in stocks. For example, if you’re 30, then 110 minus your age would be 80 — so 80% of your contributions should go into buying stocks with the remainder in bonds.
Rebalancing reduces risk
Just because you set your contributions to the right percentages of stocks versus bonds doesn’t mean that your actual investment balances in your retirement accounts will match those desired percentages. This is a result of something that’s normally highly desirable in an investment portfolio: namely, diversification. Diversification means spreading your money out over several very different types of investments, so that if one type of investment performs poorly, it’s likely that the others (being so different from the first investment) will be holding steady or even going up. Of course, the fact that your different investments will be behaving differently means that the changes in value between those investments will also change the percentage of each type of investment in your portfolio. For example, let’s say that you have set your contributions at 80% stocks and 20% bonds. Over the last year, the stock market has thrived but bonds have declined in value….