Women And Retirement: Time To Get Aggressive

Too little, too late is a habit even nonworking moms must break

Once Jeanette Donahue became eligible for her 401(k) plan three years ago, she took everyone's advice and invested 7% of her salary in the generous company-match program. "But I didn't know anything about investing and knew I needed to learn more," says Donahue, production manager at Strata Graphics in Conshocken, Pa., which prints pharmaceutical research materials. So last year, the newly married 28-year-old took the Women & Investing course at Temple University. The most important lesson she learned: "Have your own pool of money, because you never know where your life is going to lead you."

Donahue has the right idea. She's taking control of her financial future--independently from her husband, an accountant. Unfortunately, most women still abdicate investing responsibilities to their husbands--or worse, wait until a crisis before they are snapped into financial-planning reality. But 90% of all women, either through divorce, widowhood, or because they have never married, will be in charge of their own finances at some point in their life.

The basic tenets of investing are the same for both genders--determine your financial goals, identify your risk tolerance, and create an asset-allocation plan. But the way in which men and women approach money and investing is very different. "Men invest to grow their principal, and women invest to protect it," says Mary Rudie Barneby, president of the Delaware Retirement Financial Services unit of Lincoln Financial Group in Philadelphia.

Some startling statistics underscore the need for women to take a more active role in managing their finances. Approximately 53% of the women in the labor force are not covered by a pension, vs. 22% of men, according to a 1998 study by Christopher Hayes, director of the National Center for Women & Retirement Research at the Southampton College of Long Island University. Those women who do have a 401(k) aren't investing aggressively enough to generate the necessary income for their life span. Nearly 90% of women with household income of at least $30,000 from 1996 to 1998 owned certificates of deposit in their retirement accounts when they should have had higher-risk stocks for growth, says NCWRR.

When you consider the average woman's income history, sporadic employment record, and long life span, the picture becomes more troubling. Women typically make 60% to 80% of what men earn to do the same job. They take more time off work to raise a family, which cuts into their pension savings. And they live seven years longer, on average, than men. "Women start saving later and save less, and they need to save sooner and more," says Bridget Macaskill, CEO of Oppenheimer Funds (Q&A, page 194).

Such disparities between genders have prompted the financial-services industry to launch an education drive targeted at women. Brokerages such as Merrill Lynch, Salomon Smith Barney, and PaineWebber, and mutual funds like Vanguard, Oppenheimer, and American Express Financial Advisors offer seminars, books, and personalized retirement analysis. "Women like to go to seminars to socialize and learn in a nonthreatening environment away from men," says Jan Blakeley Holman, a vice-president at AmEx Financial Advisors.

The good news is, once women start investing, they trade less than men and consequently earn higher returns, says Terrance Odean and Brad Barber, finance professors at the Graduate School of Management at the University of California at Davis. Men trade 45% more than women do each year and earn 1.4 percentage points less on a risk-adjusted basis.

The single most important investment strategy for women of any age is to have their own savings and retirement accounts, even if they are married. Too often a woman's savings is considered supplemental to the family finances. Indeed, a recent Lincoln Financial Group survey reports that women use 401(k) loans more than men do for their kids' education and getting out of debt.

Women should also have disability insurance. Many married working women don't, thinking they can rely on their husbands if something happens. "Think of it as a savings-protection plan," says Anita Saville, publisher of Purse Strings, a financial newsletter for women (877 256-8172; www.pursestrings.org). A good rule of thumb: Insurance should replace half to two-thirds of your salary.

For women in their 20s, it's important to save early and often. But a common concern is that when you're starting out, income is so low there isn't enough to save. Saville recommends finding mutual funds that accept small amounts, even $25 a week, to put into automatic investment plans. Now is the time to invest aggressively.

As women drop out of the workforce in their 30s to start a family, they also stop saving. That's a big mistake (table). "Women staying home to raise children are making an economic contribution to the family," says Barbara Raasch, a partner at Ernst & Young in New York.

To maintain financial independence, figure out a "salary" on your stay-at-home job. Calculate how much a baby-sitter and housekeeper would cost. Say it's $20,000 a year. Barneby recommends you take 10% out of your family income, or $2,000 in this case, and salt it away in an individual-retirement account. Also consider mutual funds that try to minimize taxes.

Women who return to the workforce in their 40s and 50s do so in the peak earning years. So Laura Wolf, a managing director in Citibank's private bank, recommends "saving 'til it hurts." It's also the time when you are juggling financial responsibilities: spending for your children's college, caring for aging parents, and funding your retirement. If you haven't met with a financial adviser, do so now.

In your later years, you need to check on the benefits available to you should you become widowed. Know where the financial documents are and devise an estate plan. Have money invested in growth stocks throughout your retirement. The goal is to nudge you toward financial self-sufficiency--and make all the investing education programs geared to women obsolete.