Behind the Retirement Curve

There is still a great deal of discussion surrounding the fact the women are further behind the retirement curve than they should be. It is estimated that women will need $240,000 in retirement funds compared to $170,000 needed by men. These estimates, in my opinion need some fine tuning. Nonetheless, even if current 401(k) balances are taken into consideration, both groups are still far behind where they should be.

Consider this: Amongst the facts available concerning retirement, one number stands out. The cost of healthcare, the unknown possibility that at some point during your retirement you will need much more than Medicare can provide, will be close to $100,000. This means that both men and women will be left with far fewer dollars to subsist on than they have anticipated.


Consider this: Women still face individual hurdles in the workplace. This gap in pay is closing but not for the reasons you might think. Men faced the biggest problems during the recent downturn and women saw the biggest opportunities in landing any newly created jobs. But were those jobs as good as they should have been?

It has long been a fact that the vast number of women entering the workforce do so at a lower pay grade than their male cohorts. They will find more jobs in smaller businesses and because of that and those employers, they may find the options to save for retirement smaller. In many instances, these smaller businesses have less than adequate 401(k) plans, some merely a shell of of what larger corporations offer.

It is also a problem for women employed in larger companies with adequate 401(k) plans in part because the plan matches are smaller and are not expected to return to pre-2008 levels anytime soon.

It is also well-known that women will not be paid as much as men are or have been paid for similar jobs. USA Network founder Kay Koplovitz suggested recently that women simply don't ask for what they feel they deserve. It might have something to do with the fact that women "lean back" in the initial stages of their careers, looking toward the possibility that they will eventually take time off to begin a family. This false start often gives them fewer chances to achieve a robust retirement and to ask for the money they think and should deserve. Ms. Koplovitz suggests they take the reins of their plans "first, harder, and faster". Taking time off: use an IRA to keep invested.


Consider this: The auto-enrollment of new hires, the majority of which seem to be women, has seen the participation levels in 401(k)s increase. But studies have shown that these new participants invest too conservatively when they are young, giving up some of the much needed risk they should be taking in the early stages of their careers.


Consider this: Women will live longer and even more frightening, may live longer alone.
There are no easy remedies. Yet some come to mind. Yes, women need to invest more and more often. They shouldn't let any career interruption keep them from investing. They should be requesting their employers add annuities to their 401(k)s in part because these products, tucked inside these plans cannot discriminate based on the sex of the contributor. This isn't so outside the plan where actuaries step in and calculate this potential longer life into their equations.

Yes, first, harder, faster is a good mantra to embrace when looking to the future. But women need to ask for better pay, more education about the investments they need, a little more risk and more importantly, retirement plans tailored to their specific needs.

Party of One may be a Retirement Way of Life

Boomers take heed. And late Boomers and children of Boomers should do so as well. Is "one" the reality that most of us face in retirement? 

In truth, one is a reality for far too many older adults. Unlike the often advertised retirement of living out the golden years as a couple, the chances of doing so solo is far more common than we actually want to entertain. We plan that way though and if we do, it is often the woman who is the half of the couple that survives.

No one wants to think about a life in retirement as we youthfully walk down the aisle. And even fewer think about life alone as we say our vows. But the truth is, you can do much better thinking that way right from the beginning of your journey than making adjustments later in life.

Recently, I was confronted with two statistics: there are now fewer traditionally married couples in the US for the first time and that women can expect to be, on average, widowed by the time they are 56 years old. Both of these stats point to a greater chance that at some point in a woman's life, when they least expect it, they will be a party of one.

Even if you do not want to entertain the thought, you should keep in it in the back of your mind, plan for it as if it might happen and do so subtly. Here are five suggestions that apply to both sexes but because the odds are in the favor of the woman as the survivor or better, the soloist in this journey, it focuses more on that possibility.

1) Never let a career interruption stop your retirement plan from happening. Far too often, it is the years of child-rearing, the time spent taking care of an aging parent or even "working under the table" that has the greatest impact in the security women might have twenty or thirty years later.

2) As a couple, employing every option you have as early as possible is key to getting to retirement as close to worry free as you can. This means using your 401(k) as one half of a total plan and your spouse's as the other. Often, 401(k) plans are not even close to perfect. But you can create a hybrid plan that acts as a tandem plan. Suppose one has higher fees or one has index funds that the other doesn't offer. If a women has access to annuity in hers, she should use it. (Even as I am not much of a fan of annuities, inside a 401(k), they can be just the thing a plan like this needs in part, because they can't make a determination by sex.)

3) Plan as if you may not always be a couple. More than just death takes away the best laid plans of a couple. Divorce still impacts the woman more because it often happens later in life. And because it happens later, the woman, who has a half-baked notion of a plan because of what I mentioned in the first suggestion, it is a devastating event from a financial perspective. Even a good lawyer will be able to squeeze just so much out of the marriage, which may not be on solid financial footing in the first place.

4) You may not marry. And of you don't, you need to recognize that you are the only one that can save you. If you are a woman, the chances of outliving your retirement income is much greater in part because you don't have the accumulation of two incomes to fall back on at some point.

5) Consider your living arrangement as soon as possible. A house is great if you are able to maintain it (and this includes such mundane tasks as mowing the lawn or shoveling the walks). Baby Boomers will be the first generation to join their parents in retirement and this is a very serious consideration, particularly if you are the only single sibling. While how you live is important, where you live can have biggest impact on any retirement income, whether single or as a couple.

I realize that no one wants to think about the chance that life in retirement will be a solo event, but it will be at some point for one of you. Men and husbands should make every effort to plan for this possibility. Women should never let their men forget and keep funding their retirement even when it seems impossible to do.

Paul Petillo is the managing editor and founder of BlueCollarDollar.com and Target2025.com

Can a pension be a 401K?

Is the pension plan, the dinosaur retirement plan of times gone by the answer to getting the older worker to retire at the historic retirement age and the answer to all of the economic problems facing the country right now?Possibly. Monique Morrissey, an economist and Ross Eisenbrey, the vice president of Economic Policy Institute recently offered their thoughts on why the pension offered the older worker the kind of security that is mostly absent in the 401(k).

Are pensions dinosaurs?

The idea has legs but not based on how they believe it could be achieved. While the authors suggest: "workers with only 401(k)s are better off than the nearly half of full-time workers with no retirement plan at all. The impact extends beyond older workers, their families, and younger workers waiting in the wings." They believe that adjustments made at the legislative level to make health insurance more affordable would be enough to give older workers the needed nudge to retire on time.

If, as many people I have spoken with admit, we'll never go back to pensions, perhaps we should instead look to some sort of hybrid idea. The 401(k) had the net effect of shifting risk to the worker, allowing for worker mobility and giving the employer a cost savings not present in the pension plans many were managing. Now, we pine for the days of the pension.

The birth of the 401(k)

Not that this was how it actually happened, but you can picture the backroom thinking: we'll shift the burden of retirement (and risk) on our workers and force them to buy into the stock market. The market will boom (see the bull market that coincided with the advent of the 401(k)) and everyone will be happy. We'll have a mobile and disposable workforce that can take their money with them when we no longer need them. No pensions, no loyalties, no ties that bind for decades, no human capital trade-offs in the early years. Genius. As I said, not that this actually happened. And furthermore, I believe that when Ted Benna, the father of the 401(k) and discoverer of the line in the tax code introduced the notion, this wasn't what he envisioned.

Fast forward three decades

And then the housing crisis crippled the mobility part. Too many people want to move to another city for another job but won't or simply can't. Older workers who have work are focused on being sure that they can retire and as a result are clogging the system of job turnover, necessary to accommodate the growing workforce.

Rather than shift the burden on the government by making benefits more accessible, why not use a pension trick. If employers offered an incentive like the five best, older workers might be willing to move on. Here's how it would work. In most instances, older workers earn the most in the final years of work. Why not reward them for their loyalty and expertise by offering a double or even triple contribution to their 401(k) if they also max-out their contribution. Rather than pushing the burden of catch-up onto the employee, the employer would also step-up their matches as well. It would probably require a tweak of two to current law to allow it. But the change would be worth it.

Three things would happen.

The older worker would get this massive incentive to save more in the final years and although they wouldn't be forced to retire, the contribution bonus could end at 65. The worker could stay on but the catch-up period would be over. This would allow the older worker to see the advantages of saving more sooner and capitalizing on the contribution bump. And the employer would see an offset in cost with a new hire, often employed for far less than the older worker.

The best of pensions combined with the self-direction of 401(k)s and the incentive to retire seems to be a simple tweak, a proverbial gold watch and a more secure older worker entering retirement. And the job cycle would, at least in theory, get moving again. And while Washington is legislating, how about requiring index funds in all 401(k) plans and annuities (which are forbidden to consider sex when tucked in these plans - which is a benefit for women in particular and men as well).

Paul Petillo is the managing editor of BlueCollarDollar.com/Target2025.com