Outside the Box: How can women do a better job preparing for retirement?

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In 1758, Ben Franklin wrote in his book “The Way To Wealth” that “an investment in knowledge always pays the best interest.”

When it comes to managing your personal finances, that adage is as germane today as it was then. So let’s start with a simple quiz.

Question 1: Suppose you had $100 in a savings account and the interest rate was 2% a year. After five years, how much do you think you would have in the account if you left the money to grow?

a) More than $102

b) Exactly $102

c) Less than $102

Question 2: Imagine that the interest rate on your savings account was 1% a year and inflation was 2% a year. After one year, how much would you be able to buy with the money in this account?

a) More than today

b) Exactly the same as today

c) Less than today

Question 3: Do you think that the following statement is true or false? “Buying a single company stock usually provides a safer return than a stock mutual fund.”

a) True

b) False

The answers are at the bottom of this column, but no cheating, please.

These three basic questions were developed by Annamaria Lusardi, an economist and professor of economics and accountancy at The George Washington University School of Business and Olivia S. Mitchell, an economist and professor at The Wharton School of the University of Pennsylvania.

They’ve been used in more than 20 countries to measure financial knowledge. Evaluations of results across countries have verified that financial illiteracy is a global problem, and that women unfailingly score lower than men. No big surprise there, but disturbing nonetheless.

The new Aegon Retirement Readiness Survey highlights that finding once again. The survey of 14,400 employees and 1,600 retirees in 15 countries — from Aegon Center for Longevity and Retirement and nonprofits Transamerica Center for Retirement Studies (TCRS) and Instituto de Longevidaded Mongeral Aegon — found that financial literacy is far worse among women than men. Less than a quarter (23%) of the 8,067 women surveyed answered all three questions correctly, compared with 36% of men.

Not only did most of the women stumble on their financial savvy, they’re anxious about being prepared financially for retirement. Only one in four women workers (26%) are very or extremely confident that they will achieve a comfortable retirement, compared with 32% of men, according to the research. Just 21% of women currently in the workforce feel they’re on course to achieve the retirement income they expect to need (compared with 29% of men). And more than a third of women workers don’t know if they are on course to achieve the income they expect to need in retirement. (To be fair, men aren’t doing so great on these measures either.)

The takeaway: It’s not an easy skate for most women, me included, to stash away enough retirement savings to cover potential living expenses for our last decades. A recap of the challenges women face: There’s the pay gap between women and men, the cost of time out of the workforce for caregiving, and the often-devastating financial reality of a divorce at midlife. And of course, there’s the fact that so often women are contract workers like me with no employer retirement plan. They may also work part time, or are employed by a small business that doesn’t offer an employee retirement plan. Finally, we tend to live longer lives than our male counterparts, so we have extra years of living to fund.

One of the biggest worries women have is how they’re going to pay their medical bills when they are in their 70s and beyond. Even women who are saving adequately regularly tell me that they worry that all they’ve built up will get eaten up by health costs. And it just might.

When it comes to saving for health care costs in retirement, women must set aside much more to cover their medical bills post retirement than their male counterparts. According to Fidelity, a 65-year old couple who retired in 2019 can expect to spend $285,000 in health care and medical expenses throughout retirement. For single retirees, the health care cost estimate is $150,000 for women and $135,000 for men.

For older women, though, some good news in terms of financial security is that a large portion of women are working in full-time jobs past their 60s and even into their 70s. In fact, according to The Pew Research Center, 25% of boomer women are in the labor force at the ages of 65 to 72.

Working longer makes it possible to contribute to retirement accounts and to dodge dipping into them for living expenses. It also often comes with employer-based health insurance.

Another upside of working longer can be a bump to your financial benefit in Social Security. The extra years of earnings at these ages can replace earlier years of low or zero earnings in the retirement benefit computation formula. That’s encouraging for women who stepped out of the workplace to care for children or aging relatives.

And a new law should help women save more: The federal Secure Act offers small businesses tax incentives to provide automatic enrollment in retirement plans for its workers, or lets them join together with other companies to provide retirement accounts to their employees. The law also removes the maximum age cap for contributions to traditional individual retirement accounts and encourages employers to allow part-time employees to put money into workplace retirement plans.

These changes may be incremental, but they’re positive and the more ways we have to save at work, the better.

As for the lousy literacy results for women, do something about it. Seek out investor educational resources offered by your employer, the Women’s Institute For A Secure Retirement (WISER) website, the Investor Protection Trust website. You’ll find investing education primers on most financial services websites such as Vanguard, T. Rowe Price TROW, +1.30%, and Fidelity. Read personal finance articles on websites such as HerMoney. Take a personal finance course at a community college. Start a money book club with your gal pals and learn together about investing and finances. Trust me, that can be fun.

And now, drumroll for your quiz answers: 1. A; 2. C; 3, B

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