Why women should save a little harder for retirement

What does it take for women to retire in relative comfort? In essence, only a little more than it takes for men. We are not talking about the opposite gender requiring greater comforts; it is simply that women, on average, outlive men and therefore their savings must last longer.

According to Tracy Jensen, Chief Operating Officer at 10X Investments, the laws pertaining to retirement funds are gender-neutral, as are the investment principles that underlie a successful retirement plan. However, Jensen explains that, “All else equal, a woman will pay 10% more than a man for a guaranteed (for life) annuity. Women should, therefore, strive to save at a slightly higher rate – if the guideline for men is to save 15% of their income for 40 years; women should ideally target 16,5.”

“Time is the strongest ally in any savings plan. The sooner you start, the longer you will have to benefit from compounding returns, and the less you will need to contribute from your income. So much so, in fact, that a two-year head-start is as good as saving 10% more per annum”, says Jensen.

If a couple wants to preserve their accustomed lifestyle, their savings rate must be based on their combined income and, most likely, both will need to do their share.

In all other respects, the same basic principles apply to men and women: use tax-advantaged retirement funds, minimise investment costs and invest in a risk-appropriate portfolio. For long-term investors, this mean having high exposure to the share market, notwithstanding short-term volatility. You have time on your side to ride out these bumps.”

“However, getting all these things right will mean very little should you not preserve your savings when you leave an employer,” says Jensen. She adds that many 10X customers’ track records show that this is where women can be their own worst enemy. She adds that particularly when resigning to start a family, the inclination is often to cash in retirement savings. The money becomes available at just the right time, when household expenses are set to increase. Few realise that this classic case of putting the family’s needs above their own will dent their retirement income one day.

“Cashing out means giving up not just what has been saved but also the potential return that would be earned on those savings over the next 30 years or so. That is by far the bigger loss. Realistically, you can’t save enough in future to make this up, even more so if the career break lasts for a few years.”

Of course, not everyone returns to formal employment. “Being a stay-at-home mom often makes a woman excessively dependent on their spouse, and the spouse’s saving habits,” says Jensen. “Legally, you have no say over your spouse’s pension or provident fund, even if you are married in community of property. For example, the member alone gets to choose whether or not to preserve the retirement fund when a new job comes along.”

Starting a family should not mean you have to sacrifice your personal financial security. The children should not be expected to make it up to you one day. Even if they are willing to help they may not be able to afford it. The key is to preserve what is already saved, and align household spending to the available income.

10X retirement experts say that in the event of a divorce, women frequently cash out their share rather than preserving. Often it is seen as an economic necessity to make the divorce work, replacing one household with two. Paying off debt might resolve immediate cashflow problems, but it does not change one’s overall financial position. You still ‘owe’ this money, if not to the bank, then to your retirement.

The fund member cannot access their retirement fund on divorce (only the non-member spouse can do so). While this may cause some near-term financial hardship, it leaves that party much better off long-term because they still have their savings, and these will continue to grow until retirement.

The non-member spouse should try to ensure a similar outcome. They should try to balance the economics of the divorce on the basis that they will preserve their share of his retirement fund too. That, in truth, is the real financial cost of a divorce (not the legal fees) and you need to accept this situation as part of the outcome.

Jensen says, “Our message to women: take charge of your retirement affairs, and start early. If you are married, pretend you aren’t on this issue; don’t put all your eggs in his basket. The best way to live is freely, and in the present, and to choose yourself. When life-changing decisions are necessary, it is to be able to answer the question, “Who will look after me when I’m old?” out of the equation.”

Article credit http://www.insurancegateway.co.za/RetirementConsumers/PressRoom/ViewPress/Irn=16175&URL=Why+women+should+save+a+little+harder+for+retirement#.WZLgKxGQzmQ