When it comes to a comfortable retirement, women in the US have the cards stacked against them. New efforts to start changing this are laudable, and yet they’re still missing the mark because they’re being shaped by decades of misperceptions.
The inequities a woman faces throughout her working life — from earning less to shouldering the lion’s share of childcare responsibilities — add up over the years and take their toll. More than 80% of women don’t think they'll be able to retire without running out of money compared with 65% of men, according to a recent TIAA study.
While much of the problem is rooted in culture and history — along with subpar US policies — the financial services industry bears its share of the blame. It’s long neglected women, alienating them with patronizing attitudes and outdated thinking, making wrong assumptions about what they care about, relying on technical jargon and telling them to spend less rather than invest.
Instead, they should be working with women to help them overcome the specific financial obstacles they face.
There seems to be a glimmer of awareness now, perhaps as banks realize the total pool of wealth controlled by women globally will rise to as much as $93 trillion by 2023, according to estimates by Boston Consulting Group. There are mutual funds that only invest in companies that prioritize women’s advancement, banks conducting studies on women and their finances, and firms that are focused on making their wealth management teams more diverse.
Unfortunately, most of these efforts are woefully inadequate, unlikely to give women any kind of constructive assistance to reverse their disadvantages in retirement.
The latest attempt is from BlackRock Inc., which introduced a new set of model portfolios to help women have more money in retirement. The firm’s thinking is that since women live longer, earn less and may experience gaps in employment, they could benefit from gender-specific portfolios that put more of their cash in stocks.
It sounds nice on paper, and the firm seems to have put a lot of thought into it, but I’m still underwhelmed. It’s a set of products just for women, while most women don’t actually want products made exclusively for them.
A 2020 report from BCG that looked at wealth management and women highlights how firms too often treat women as a homogenous group, ignoring the varying needs and preferences of different clients.
“Women do not want or need products that are different from those offered to men. Rather, they want a personalized approach that is tailored to their financial objectives,” according to the report's authors.
Debra Brede, a financial planner in Needham, Massachusetts, has the right idea: She constructs her clients’ portfolios, whether for men or women, as though they will live to 100, using investments from every asset class.
BlackRock's model portfolios for women are based on the firm's target date fund framework (but they’re sold through financial advisers rather than offered through 401(k)s for regulatory reasons). So there’s some customization that may be happening, but it still seems like the portfolios aren’t really that bespoke, or taking a woman’s individual preferences and needs into account.
Perhaps for women with a more modest level of assets the BlackRock setup can be attractive. Some financial advisers don’t want to go to the trouble of customizing portfolios for clients if they don’t have a certain net worth — but if that’s the case, women would likely be better off just going with low-cost exchange-traded funds.
It’s dangerous to make generalizations, but if there’s anything that differentiates women investors, it’s that they care more about their investments making enough money to achieve certain goals as opposed to just outperforming an index or generating a set return. This holds true at different levels of wealth.
There are also some misconceptions around how women investors view risk. Some studies have shown women to be more risk-averse , and on average they have a high amount (40%) of their portfolios dedicated to cash, according to BlackRock. But there are important caveats to this idea.
If women know from the outset that they have to take on more risk for their investments to get them to a specific goal, say, buying a house, then they’re comfortable with it. Sallie Krawcheck, co-founder of Ellevest, a wealth management firm for women, calls this being risk-aware rather than risk-averse.
“In my 24 years, women are no less likely than men to be OK with an aggressive asset allocation as long we’re all super clear about which buckets of money we’re talking about,” says Stephanie McCullough, a financial adviser in Berwyn, Pennsylvania.
The more assets a woman has, the higher her risk tolerance often is, which suggests it’s less about gender and more about wealth level.
It’s important to point out that most women are in a terrible position for retirement because they don't have access to 401(k)s in the first place. More women tend to be part-time workers or employed in jobs that don’t provide access to retirement savings plans.
Even if they do, their earnings are often too low to have enough left over to invest for retirement. About 50% of women ages 55 to 66 have no personal retirement savings and just 22% have $100,000 or more (compared with 30% of men who have $100,000 or more in savings).
This is more of a policy problem than something the financial services industry should be responsible for fixing. But it could do its part, perhaps by supporting financial education programs for low- and middle-income women, which have been shown to increase retirement savings.
Helping women to be in a better position in retirement is a tricky business, with deeply rooted and complex issues to sort through. The industry may be stepping up its efforts, but it still has a long way to go.
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