Needing to save more, they must overcome risk aversion and short-term focus.
Planning for a secure retirement is no easy task, but for investors who are women, it can be particularly challenging.
Women often outlive male partners, they are not always constant participants in the labor market, occasionally leaving the workforce to raise children or to care for elderly relatives, and the gender pay gap persists—women earn about 81% as much as their male counterparts, according to the Bureau of Labor Statistics.
In short, women tend to have more obstacles in their path to retirement than men. To explore the extent to which women successfully navigate them, we looked at the Federal Reserve’s Survey of Consumer Finances. Because of the way the SCF designates heads of household, women-headed households comprise single women or same-sex female couples, while households headed by men include mixed-sex couples (as well as single men and same-sex male couples).
We found that women-headed households tended to have shorter planning horizons when considering savings and investing decisions than investors as a whole. They were focused most strongly on the next few months to the next year, suggesting that these households must attend to more immediate financial needs, such as meeting living expenses and paying down credit card debt, at the expense of planning for retirement.
Thirty-nine percent of women-headed households considered saving or investing for the next few months to a year to be their priority, compared to 32% of investors as a whole. Only 31% of these households reported prioritizing the next five to 10 years or 10-plus years in investing decisions, compared to 43% of investors as a whole.
Also, women-headed households tended to report an unwillingness to assume investment risk. We found that 36% of women-headed households reported being unwilling to take on any risk at all, compared to 25% of all investors. Only 19% of women-headed households reported a willingness to take on above-average investment risk, compared with 24% of all investors.
This hesitation to take risk may be a reflection of the income disparity between men and women. Women-headed households typically earn less than those headed by men and may be less able to weather economic downturns. In turn, this may lead to a conservative approach to investing.
That said, this risk-aversion can be counterproductive. Assuming an appropriate amount of risk is a necessary part of retirement planning. Investors are less likely to meet their retirement income goals if they don’t take on any investment risk at all, which introduces an entirely new risk—the risk that they will outlive their savings in retirement.