You are on a commercial flight cruising at 36,000 feet when the cabin begins to lose pressure and oxygen masks mysteriously drop from the ceiling above. Your small child is next to you and your first thought is to place the mask over her face make sure she gets enough air. But as you gasp for breath yourself, the flight attendant’s voice reverberates: place the mask over your mouth first so that you have the capacity to help others in need.
When it comes to retirement planning, women haven’t even located our oxygen mask. After all, we have a do-it-yourself retirement system in place where each person is responsible for bringing her own oxygen mask on board. Fortunately, we have Social Security but on average, that only replaces about 40 percent of income earned before retirement. It’s up to us to fund the rest through savings accumulated over the years. You haven’t started yet? You just need to pay off your mortgage/rent payment, car loan or college loans first? You’re not alone. Right now the majority of Americans over age 50 have less than $30,000 total in retirement savings with men in aggregate have retirement account balances that are 50 percent larger than those of women (Vanguard study: 2015).
Here are some alarming statistics:
- Of the 161 million workers in the United States, 54 percent or 87 million do not have access to a retirement plan at work (Retirement Equity Lab).
- Women are 80 percent more likely than men to be impoverished in retirement National Institute on Retirement Security.
- Men in aggregate have retirement account balances that are 50 percent larger than those of women (Vanguard study: 2015).
- 42% of working women lack financial security (CNN.Com).
- Women over 65 live more than 2 years longer than men in this age group on average
The Female Financial Paradox can explain part of this lack of preparedness. This is a phenomenon where although a growing number of women are now the family breadwinners and up to 90 percent of women identify themselves as chief bill-payer of the household, we still tend to shy away from larger financial decisions like investing and retirement. We need to take charge and realize that in a do-it-yourself retirement system, we have to put money aside each and every month for our future. No one else will do this for us and being self-sufficient financially in our senior years is not only a help to us but also a big help to our loved ones. Remember the oxygen mask principle. In order to help others, you have to help yourself first and that includes saving for your future.
But my problem with the Female Financial Paradox is that it blames each individual instead of looking for a collective solution. If 90 percent of a certain group fails to live up to expectations, we need to address the system that leads to such dire results. I spoke recently with Teresa Ghilarducci, director of the Retirement Equity Lab at the New School about how to address our retirement crisis that disproportionately impacts women. Ghilarducci is a pioneer and longtime advocate of Guaranteed Retirement Accounts (GRAs), a public-private system to ensure retirement income for all workers. She says that a mandatory retirement system would help most workers and especially women overcome some of the obstacles which limit our saving. Women are more likely than men to move in and out of the workforce and seek out employment that offers flexibility. Many of our employers simply do not offer retirement plans.
We need to consider our looming retirement crisis as a human catastrophe and a woman’s economic empowerment issue. Remember the mantra: Control our Money, Control our Destiny. Without reform and planning for our futures, we control neither. Finally, our government is beginning to recognize the severity of the situation. The federal government has put into place regulations supporting state efforts to provide Retirement Savings Accounts (auto-IRAs) to workers not covered by employer plans. Since 2015, seven states covering 23 million workers, including Connecticut, New Jersey, and California, have enacted retirement reform and 28 other states, including New York, are considering similar legislation.
But just last week, On February 15th, a Republican led House of Representatives advanced two bills to overturn federal rules that would make it simpler for states to start these auto-IRAs. The financial industry opposes these plans as fees would be kept low and transparent, a boon for Main Street but at the expense of Wall Street.
So, yes, we women need to fight the Female Financial Paradox and embrace learning about investments and retirement account choices. We need to fight our instinct to think that planning for our future is an abstract concept that need not be a priority. But we also need to advocate for retirement safety nets like Social Security and auto-IRAs. After all, the government would not allow you to board a plane without oxygen masks installed.