Women who return to the workforce after raising children often discover they have lost precious time for contributing to their Social Security accounts. Those lost dollars can pose significant problems when they retire down the road.
American women spend an average of 14 years out of the workforce, according to Individual Investor Magazine.
The National Center for Women and Retirement estimated that women earn 25 percent less in salary than their male peers and there is a 90 percent chance that a woman will be financially on her own at some point in her life.
Not only do women depend more on Social Security benefits than men because of their longer life expectancies, but women also are less likely to have a 401(k) or private savings, according to Matt Moore, a senior policy analyst at the National Center for Policy Analysis (NCPA).
"It is a pressing issue, because Social Security benefits are not lavish," Moore said. "What some women have to do is work until an older age or just live on a smaller Social Security benefit, and typically they don’t have an option to work longer."
Saving money early is key for most women, Moore said.
"When women have an intermittent work history, regardless of the reasons, when she goes back to work, she does not return to the same level in which she left, and it is hard to catch up from those affected earnings," said David John of the Heritage Foundation, Washington D.C. "Women also live longer than men and need Social Security for a longer period of time. And for the same reason as women being out of the workforce at various periods, it is harder for women to save money, especially when she doesn’t have any money of her own coming in."
The problem is compounded for young women, who may find it difficult to save when money is needed for more urgent reasons, such as preschool, medical emergencies, children’s college expenses and unplanned events.
Brenda Frank, a certified financial planner for A.G. Edwards & Son, Franklin, said women should learn to manage their own investments.
Frank points to U.S. Bureau of Labor Statistics data from 2000, which indicated that 47 percent of marriages in the United States end in divorce, the average age of a first time widow is 55 and women outlive men by an average of seven years.
"Financial planners tell us that workers typically accumulate retirement assets from three sources: personal savings, Social Security and employer-sponsored retirement plans. Unfortunately, many women – because of their life choices and workforce behavior – fall short of building up these resources," NCPA senior fellow Celeste Colgan and NCPA president John Goodman stated in an article titled, "Saving and Investing: A Challenge for Women," in April.
"As far as things you can do, you definitely want to make smart decisions with your money, and the sooner the better it is to invest," Frank said. "Use any kind of IRA (individual retirement account) you can, whether it is a Roth or a traditional IRA, depending on your income level. See a financial consultant and make sure you have some money in growth investments that will outperform inflation."
Colgan and Goodman reported that tax-advantaged savings could produce more than twice as much income as comparable taxable investments.
"I think women tend to be more conservative in investing, and then they don’t end up with as much money later," Frank said. "Asset allocation should reflect your risk tolerance. The best solution is the longer you invest, the better off you are, because timing the market is a very difficult thing to do."
Social Security is not something Americans should depend on, or count on for that matter, investment advisors say. Social Security reform is on the horizon as baby boomers use all of the available funds.
Social Security should be viewed as a source of extra funds once a person retires, John said.
With married couples, spousal benefits are available, but divorced and widowed individuals, mainly women, will struggle with funds if they are too dependent on the system.
"There is a whole feminist critique on the Social Security system," said Janet Boles, professor of political science and an expert in women’s public policy at Marquette University. "When it started in 1935, it was predicated on the assumption of the male working and the woman as a housewife with dependent children."
The NCPA reported in February that single-earner couples currently only make up one-fifth of American households.
"You should always have a savings, even if you are putting money toward your child’s college education and your own retirement at the same time," Frank said. "The longer you wait to put money toward retirement, the more money you will need in the end."
June 11, 2004 Small Business Times, Milwaukee, WI
