Retirement Planning: It's complicated

I'm a man. So that makes me a relative outsider when it comes to speaking about women and their focus on retirement. It doesn't necessarily mean I have a bias of any sort; simply that understanding why most women - or at least those who answered the latest ING survey about women and retirement, still haven't embraced retirement planning.

The survey uncovered a number of different bullet points that make me ponder the future retirement plans of women. For instance:

• Seventy-eight percent of women say they lack financial savvy about retirement planning. It is extremely hard to quantify savvy. It could mean the ability to approach the subject with confidence, something men only pretend to have. Men, as even more numerous surveys have uncovered, do more research but those same surveys do not suggest that men actually do better than women at investing. In fact, men tend to have a more free-wheeling approach to spending and credit, which if calculated against their ability to retire in a better financial place, leaves them somewhat behind. Or savvy could simply mean they don't focus on what they don't know because the topic is still, even after all we have been through, is not a clear as it should be.
• Thirty-three percent let their significant other make the retirement planning decisions. This is interesting because there are few women who believe that their spouse will ultimately outlive them. Numerous studies have suggested that at the point of retirement, men make decisions about what they have accumulated without taking this longevity issue into account. When some male retirees choose an annuity, they do so without considering their own demise might occur before their spouses. Instead, they look at the monthly dollar amount they will receive and take the highest figure possible. Doing so, eliminates much of the spousal benefit leaving their survivors with far less. Worse, men who chose not to take the annuity choice at retirement, believe they can invest their account and do so at the risk of drawing the balance down to a point where their spouses have little left.
• Thirty percent have no idea what their main source of retirement income will be. I can tell you with almost complete certainty: a woman will have accumulated less over the course of her working career. She will have had interruptions due to children and possibly aging parents and when that occurs, her 401(k) is usually less at the end of a working career and her Social Security, because of those missed years, will also be smaller than her spouses. It is important to keep in mind that divorce and single parenthood also jeopardize the long-term strength of any retirement accounts. Focusing on the present day, while important in terms of staying financially solvent, doesn't provide income in the future. It will however create a more financially solvent future if they have saved no matter what their situation.
• Thirty-seven percent of women blame complicated Wall Street jargon as well as trouble managing their everyday expenses as hurdles that prevent them from being savvy about investing. While women struggle searching for the truth, men fake it. Wall Street jargon is designed to be convoluted and will not change simply because you don't understand it. There are some simple steps you can take that even men ignore: keep investing no matter what the market is doing in the present tense; invest more than you can afford and adjust your daily budget to accommodate it; use index funds across a wide swath of the market; know that savings is safe and investments involve risk but using index funds lowers the risk while lowering the cost of investing.

In all, 65 percent of those surveyed described themselves as "traditional" rather than "modern" women. Of all of the statistics, this is the most gratifying. If traditional means what I think they suggest it does, then this implies prudence and pragmatism, curiosity but skepticism, and most importantly, an approach that takes the whole into consideration rather than the self-centered approach most men tend to use. If traditional means understanding the impact of credit, the belief that they will live long in retirement, and that they care more for their loved ones and want to see them do well, then this is encouraging.

All they need do is get in touch with only a few of the things men do when it comes to investing; but certainly not all. Because men don't statistically do better at investing; they simply do more of it.

Another Retirement Planning Study on Women

There is another study out this past week, this one conducted by the Hartford, on the state of retirement. Beyond knowing where you stand on the subject, a point in time that seems to defy statistical reports such as these, the feeling that we are mostly under the microscope of planners and brokers and insurance agents is becoming annoying. The Hartford study on the retirement plans of those in a post-Great Recession world reveals some interesting percentages. Yet the back story is somewhat concealed in those facts and figures.

It is nice to see that women are participating in their retirement plans with a great many of them seeking to gain some sort of comprehensive understanding of exactly what these plans are. No mean feat by any stretch and a struggle that men have seemingly come to grips with, given up on or otherwise recoiled in risk averse fear. Women it seems are on the verge of doing the same thing. And the journey might be different; then again, it might not.

The Hartford suggests that retirement plan participation rates increased among the female workforce - but fails to mention that so did the overall female make-up of the workforce. The study also fails to mention how many of these women were swept up into the auto-enrollment mandate.

The study also suggested that this group completely or mostly understood their retirement plans (401(k)s). Which I suppose on the surface is a good thing to know. But the study doesn't necessarily test that knowledge - they simply take their surveyed answers and make some educated guesses.

Comprehension is the biggest struggle facing anyone who must use their company's retirement plan. How those plans are being used, which investments are favored the most, and how well the participants understand the importance of making regular contributions is of great interest to not only the government and Wall Street but to those actively selling, tweaking or otherwise sponsoring these plans.

Comprehension and increased participation doesn't point to higher rates of investment savvy nor do they suggest that enough is being put away to make a difference. Few people are capable of completely understanding the methodology of investments, know what risk is and how to use it. Fewer people are willing to make serious financial sacrifices while they are working to maximize the potential of their retirement plans. And even fewer still, make enough of a contribution to matter.

There was a stat in that report that suggested that many participants reduced their contribution or even stopped altogether citing economic hardships (about 22%). This also correlates with the number of employers who stopped matching or reduced their matching contribution.

While the study doesn't give us the survey questions, it would be interesting to know if those surveyed were asked if they knew what vesting was, how long their employer held their contribution before they actually gave it to them and if they were aware that they could maintain their current take-home pay with a pre-tax contribution of about 4-5%?

Vesting, for those of you who may not know is the time between when you are hired and the time you have access to your retirement plan. This varies with the best plans making it available soon after your first day on the job to up to two years. Businesses do this when they fear higher turn-over (a sign that job dissatisfaction might be higher in this job and the company has reacted by trying to hold on to their contribution in the even you might flee soon after orientation).

You might be auto-enrolled in your 401(k), but it doesn't mean you own the plan or the money your employer may have contributed on your behalf. What you do own is what you put in. That 4-5% rule is often downplayed in favor of the matching contribution, which is not free money as many say it is and it is not free of strings. In the post Great Recession era, that "free money" may actually be the only pay increase you might see. It might also come at the expense of other benefits such as health care.

And auto-enrollment doesn't suggest benevolence. It suggests a fund that the company has the smallest liability in offering a new employee who may or may not have a clue. Often these "suggested" investments come in the form of a target date fund or a low-cost index fund. Neither of these is necessarily bad for the new worker. But so much attention has been devoted to reducing risk (liability) and fees (which often come at the expense of good choices for a wide demographic of workers) that these plans, even if you are automatically enrolled are much more sterile than they were just a couple of years ago.

The 4-5% rule is relatively simple and should be used match or no match. Setting your account up to have this amount withdrawn will not impact your take-home pay. Once you become comfortable with this, and perhaps have taken the hour or two needed to become accustomed to the plan you have, the only way you will be able to increase your chances of not being poor in retirement is to begin increasing your contribution.

Increasing that retirement plan contribution can be done in a number of ways. Channel your pay increases into the plan. Forward your bonus. Reduce your debt and in doing so, use the money you spent on debt service (interest) and use it to increase your retirement plan balance. Or simply live a little smaller now knowing that it will be easier to do so while you are earning money.