After a long career> managing large accounts for an insurance company, Lynn Brooks is hardly a financial novice. But when she sought help from a financial adviser at a brokerage after her husband died, they might as well have been speaking different languages. Brooks, who's now 60, knew she'd reached the age when her savings should be managed conservatively. Her adviser, however, had something more testosterone-fueled in mind, urging her to go for growth and buy riskier assets like small-cap stocks. And when she phoned him, she says, he was often in a hurry: "It was as if he was saying, 'Leave me alone. I'll take care of this.'" Brooks, who declines to name her adviser, says she eventually took her business elsewhere -- but only after her nest egg had shrunk 30 percent over the course of a decade before the crash.
This is how the battle of the sexes plays out in the complex world of retirement planning -- and all too often, women come out on the losing end. To a surprising degree, many women are unprepared for retirement: A recent survey by financial-services company MassMutual found that women's retirement accounts were, on average, just two-thirds the size of men's. The disparity is made worse by simple demographics: Because they live longer, women need more money than men for a comfortable retirement -- up to 40 percent more for health care expenses alone, according to the Employee Benefit Research Institute. And the gap isn't expected to close for decades. "Millions of women are going to lose their standard of living unless they take hold of the situation," says Cindy Hounsell, president of the Women's Institute for a Secure Retirement.
But as women step up to do just that, many find that the financial-services industry is an obstacle, not an ally. Indeed, in a recent Boston Consulting Group survey of women investors, respondents said they routinely feel underserved by the financial-services industry, with more than 70 percent expressing dissatisfaction with the service they are getting. Among the complaints: disrespectful advisers, narrower investment choices based on the assumption that women can't handle risks and patronizing pitches like one from a bank's Web site that urged women to give their finances a "makeover." The disenchantment is especially acute among women who find themselves managing money on their own after their marriages end. Seven out of 10 widows and divorced women leave the advisers that their spouses used, according to a study by financial-services giant Allianz.
Of course, men have plenty of problems of their own navigating the retirement maze in a sluggish economy. But when experts talk about women's discontent, one factor stands out as the bull elephant in the room: Between 70 and 80 percent of advisers are men, and many veterans have built their careers serving a mostly male clientele. While some companies are slowly beginning to address the issue, a male-centric mentality still pervades the business in ways that can alienate women. Financial planners are full of formulas on how much to save and spend, but many fail to take into account the fact that women typically earn less than men and are more likely to take time out of the workforce while raising their families. And couples find that too often their adviser focuses his (or even her) attention predominantly on the man. "The one-size-fits-the-couple nature of most conversations leaves women shortchanged," says Manisha Thakor, a former portfolio manager who writes about personal finance for women. Here, a look at the unexpected challenges created by the gender divide.
Illustration by Ryan Etter>
The Adviser Disconnect
To hear Cathy Vollmer describe it, visiting an adviser is a little like tuning into a sports-talk radio show -- when you're not a sports fan. As the breadwinner in her household, the Pittsburgh-based management consultant has been eager for help to get her family's planning on track. But at her meetings with advisers, she's often felt alienated by the beat-your-opponent jargon. ("We're all about crushing our benchmarks!") And when she talks about concrete goals, like paying for her kids' college educations, the response is usually a blizzard of statistics. "I just can't seem to connect with their language," says Vollmer.
“ LYNN BROOKS wanted to invest conservatively but says her old broker had other ideas.”
It may sound touchy-feely, but industry watchers say conflicting styles of communication have a lot to do with why women feel ill-served by advisers (advisers are from Mars, women are from Venus?). Much of the investing world, of course, is highly competitive, with compensation sometimes dependent on "outperforming," whether that means beating an index or trouncing those clowns at the brokerage across town. The result, says Eleanor Blayney, who runs a women-oriented financial-planning firm called Directions, is that advisers "organize the universe in terms of who wins, who loses. To a woman, that may be off-putting." Instead of keeping score, she says, women want to know whether they have enough money to, say, help a grandchild with college expenses or start their own business.
Stir in a healthy helping of financial jargon and the communication gap gets wider, because financial literacy, while low across the board, is lower for women than for men, according to Dartmouth economist Annamaria Lusardi, director of the Financial Literacy Center. When people in her studies were asked questions about concepts like inflation and diversification, women's average percentage of correct answers was 12 points lower than men's. Then again, when the industry tailors its pitches to women, they've been known to drop a few stitches. Lauren Wistrom, senior analyst at market-research firm Corporate Insight, says some efforts in the recent past were borderline offensive. For example, a financial time line on one bank's Web site described women in their 20s as mainly concerned with credit, debt and shoes, while another firm's marketing presentations referred to women's "shopper mentality."
So how would women prefer to talk about money? Experts generally agree that female customers prefer it when advisers address their needs holistically, educating them about their choices and explaining how they can reach their goals in the long run. For brokers who are used to a hard sell and a fast pace, that's not as easy as it sounds. "It's a bigger investment for an adviser, and women do require more time," says Stacey Haefele, president and chief executive of HNW, a marketing firm focused on high-net-worth consumers. Still, the industry is starting to do more to take gender differences into account. Citigroup's Women & Co. initiative, for example, offers audio clips on topics like "Defining Your Risk Tolerance" and "Instilling Financial Values in Your Children," which women can review before plunging into any investments. The brokerage Edward Jones says it has focused on trying to recruit more women, who now make up 18 percent of the adviser force, with a goal of reaching 50 percent. "Women like to work with women," says Amy Williams, the partner responsible for the women's initiative at Edward Jones.
Once women and advisers connect, of course, the quality of the relationship will depend on the quality of the investment guidance. But here, too, the industry sometimes tries to shoehorn women's finances into retirement-savings formulas meant for men. Two of the most important variables in such formulas, income and life expectancy, are very different for women -- in their prime working years, they earn about 38 percent of what a man does, and they live, on average, five years longer. And many advisers who specialize in women's finances say that means women should pursue strategies that go to opposite extremes, investing more aggressively than men in their younger years and more conservatively than men as they get older.
In practice, it seldom works out that way. Studies suggest, regardless of their age, women tend to be more conservative: Affluent women, on average, keep 37 percent of their assets in low-risk investments such as annuities and cash, compared with 32 percent for men, according to Cogent Research. "Women and men have the same goals, but how they get there is different," says Linda Descano, president of Citigroup's Women & Co. The problem is that if younger women don't have some higher-risk, higher-return assets, they might never reach their retirement goals -- especially now, with short-term interest rates near zero. For Tammie Ferguson, a 46-year-old widow and mother of two, it was only after she hired an independent adviser that she started to take on more risk, with a diverse mix of assets, including commodities and foreign stocks. "It was a scary move," she says of her entry into such investing, "but I knew I had to do it."
Still, many women are getting much less sophisticated advice. So-called target-date funds, for example, have become the go-to investment in many 401(k) retirement plans. But some of the funds, which change their investment mix to become more conservative as holders approach retirement, fail to fully account for women's lower incomes and longer life spans. So a fund that's designed for, say, a 50-year-old man could be out of whack for a woman of the same age. Thakor, the former portfolio manager, suggests that women consider choosing funds with a target date five years later than would be recommended for a man the same age. (T. Rowe Price, a major provider of target-date funds, says that while it's not necessary to have separate funds for women, women might consider funds that have more assets in stocks.)
As women get older, conservative investments make more sense. But curiously, the industry often fails to play up two conservative products that could be a fit: annuities, the insurance contracts that turn a lump sum into lifetime income; and long-term-care insurance, which can cover nursing home and home health care costs. Both products have been criticized for their fees and complexity, but many advisers say they can help women avoid outliving their resources. A 65-year-old woman who puts $100,000 into an immediate annuity would get lifetime income of $580 a month, taking the edge off the ups and downs in other parts of her portfolio. Some women may not connect with these products because they're sold primarily by insurance companies and not all advisers have relationships with that industry. Another reason: In conversations where a man takes the lead, investments like these often don't get much attention, says Mathew Greenwald, whose eponymous market-research firm has done extensive studies on retirement. "Men tend to be more short-term and present-oriented," he adds, "and that can be very dangerous."
Thinking for Two -- and Losing
When her kids were in college, Deborah O'Dell of Ashland, Va., didn't think twice about writing checks to help them with expenses. After all, what was more important than family? She even tapped her 401(k) to help pay for her daughter's wedding. But O'Dell ended up getting a divorce, and her plan for a relaxing retirement ended with her marriage. She now expects to work until her health gives out and to sock every penny she can into her savings to make up for lost time. "I thought it would be fine, because we would retire together," says the 59-year-old administrative assistant.
“ For TAMMIE FERGUSON, buying foreign stocks "was a scary move," but adviser Dan Serra persuaded her to start taking those kinds of calculated risks.”
Financial planners say it's common for married women to tap their nest egg, while assuming that their spouse's savings will do the heavy lifting later. That's understandable in families where the woman isn't the main breadwinner; indeed, according to financial-services company Prudential, only 25 percent of married women are the primary decision makers in their families when it comes to investing. But draining those savings is a move that's disconnected from retirement realities; about two-thirds of women between the ages of 75 and 84 are on their own. And the industry doesn't appear to be having much luck bringing women into the financial conversation: Advisers say they still see far too many couples in which the woman is not a regular part of the planning.
More pros say they're trying to teach women a cardinal rule of personal finance -- "Pay yourself first." Greg Ward, senior resident planner at education firm Financial Finesse, recommends investors make automatic deposits into their own retirement plans or brokerage accounts -- not just into joint plans they share with their spouses. Even women who aren't employed can often save for retirement by making deductible contributions to a so-called spousal IRA. And a growing number of advisers are building practices around serving the newly solo woman. When she got divorced, Suzanne Meredith realized she needed advice on everything from building college funds for her two kids to figuring out when she could retire. She eventually signed up with Pacific Wealth Management, a firm that specializes in serving the newly split. Meredith now realizes she was one of the many women for whom the industry's "normal" service doesn't work. "My needs changed," she says.
Closing the Gap
A college-educated woman will earn almost half a million dollars less than a college-educated man during her career, according to the Women s Institute for a Secure Retirement. Here s how to keep the earnings gap from becoming a savings gap.
Some advisers urge women to save more early in their lives. A 21-year-old who contributes $5,000 a year for a decade to a retirement account with an annual return of 5 percent will end up with about $450,000 at age 70.
But if she waits until age 41 to save the same amount over 10 years, she ll have less than $160,000.
Washington, D.C. based wealth manager Dawn Bennett tells her female clients to save seven to 10 percentage points more than she recommends for her male clients. Bennett advises twentysomethings to sock away 15 percent of their income and increase that each decade, saving 35 percent of their income in their 60s.
Wait for Social Security
Many women can benefit from waiting longer to draw Social Security, says Samantha Fraelich, a financial adviser at Bernard R. Wolfe & Associates in Chevy Chase, Md. For example, a worker eligible for maximum benefits at age 66 can get 32 percent more if she waits until she is 70 the difference between a $1,800 monthly check and a $2,376 one.