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Using Plan Design to Help Avert Women’s Retirement Disasters


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You can help your female employees avert the women’s retirement issues that can run them out of money in retirement them. According to the 2014 AEGON Retirement Readiness Survey, half (49%) of women in work are not confident they will be able to retire with a lifestyle that they consider comfortable. The Center for Fiduciary Studies provides ERISA fiduciary education and training or financial advisors and employers. The Center says workforce demographics should be factored in when making decisions about your plan. We believe addressing this issue does not have to be very time-consuming or expensive.

What are the issues unique to women’s retirement success?

Women face a variety of potential challenges not always shared by their male counterparts:

  1. Women live longer.
  2. Women are more likely to be solely dependent in their later years because of the loss of a husband, partner or just being single
  3. Stepping in and out of work to raise children and care for parents and/or parents-in-law
  4. Overreliance on husband to accurately plan for retirement. Spending dollars on the care of other rather than on their own retirement

Each woman’s situation is unique. These issues can be experienced in varying combinations with varying impacts. It is critical to customize a savings approach incorporating issues that a woman might uniquely face.

Why do women find it so hard to save for retirement? 

The most important factor in explaining women’s retirement preparedness is their attitude toward savings. Overall, just over one-third of women (36%) claim to be dedicated savers whose approach is always to make sure they are saving for retirement (which is not necessarily the same as “saving enough”). For these women, the question that remain are you saving enough based on your expected returns and the income you’ll need to live a lifestyle you can tolerate. For the other two-third, your first order of business is getting them into the savings habit period. Moreover, an adequate savings plan based on their income goals is critical to women’s retirement comfort.

What plan design features can employers use to help women’s retirement?

Automatic enrollment is a great jump start. It helps guide your employees to start saving. Are your female employees leaving valuable matching dollars on the table? That is lost opportunity cost on savings and compounding growth. Moreover, consider a default rate of 6% or more. A match of 3% of that 6% gives your employees a 9% total savings rate.

For context, the Employee Benefit Research Institute found a 25-year-old female currently earning $40,000 would need to be save 15 percent for a 90 percent probability of success. A 25-year-old female earning $65,000, would has a 90 percent success rate at a 9 percent contribution rate. That does not take into account lost contributions from having children and other caretaking she may find herself thrust into during her life.  Under the same set of assumptions, a 25-year-old male currently earning $40,000 would need to save approximately 14 percent for a 90 percent probability of success. If that male makes $65,000, an 8.2 percent contribution rate equates to a 90 percent rate.

Are your women employees skilled investors? Most individuals are not regardless of gender. Consider helping your employees with by using a professionally managed portfolio as a qualified default investment alternative to give them professional investment advice. If you are using a qualified default, was employee demographics, age gender, etc. considered in the decision-making? Unfortunately, many plan sponsors have been led to believe that target date strategies are the only qualified default choice.  Your demographics might point to using a balanced fund or risk-based choice.

If you have many women that have been in and out of the workforce they may be better served with the static risk/return of a balanced investment strategy or a risk based one. Target date strategies are more appropriate for younger populations who can benefit from the breadth of the varying risk/return changes in the strategy.

If you are familiar with a defined benefit plan, you know that actuaries look at issues like investment returns to recommend savings rates. If returns are poor, then you must contribute more. Do employees understand that the same goes for them in a defined contribution plan?

Why not provide your women employees (all employees for that matter) one-on-one advice as opposed to education that tailors a savings strategy based on their unique circumstances? Most people aren’t robots and want an adviser that is looking out for their sole interest. A CERTIFIED FINANCIAL PLANNER™ professional (CFP®) working in a fiduciary capacity can provide this women’s retirement planning advice. This assessment can be provided on campus, by webinar, during or after hours.

I believe you should customize an education and advice plan for your employees. The 401(k) was developed in part to supplement retirement income from defined benefit pensions and social security. Even social Security isn’t straightforward. There are various Social Security claiming strategies that can improve a women’s retirement lifestyle. I was able to help provide an additional $700 in monthly cash flow to one of my clients. Effective strategies may be able to compensate for the lost credits from work interruptions to care for family.

Sounds good but appears time consuming? Hire a fiduciary, outsourced Chief Retirement Officer to help guide you through the process. We believe key credentials include, CERTIFIED FINANCIAL PLANNER™ professional and fiduciary credentials such as Accredited Investment Fiduciary®, Professional Plan Consultant™ and Qualified Plan Financial Consultant. Listen to our 6 step process and how our approach can help your women’s retirement.

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