Saving for retirement already challenged women — then COVID-19 hit

American women are far behind men in terms of preparing for retirement. Even before COVID-19, women by the age of 65 were 80% more likely than men to be living at or below the poverty line. Women aged 75-to-79 were three times more likely to fall below the poverty level.

Women also are more likely to outlive their investments. One reason is that women live longer than men. In 2017, the average life expectancy for a 65-year-old woman in the U.S. was 86 years, versus 83 years for a man.  Moreover, one out of three women will live to 90, while just one out of five men will do so.

Another reason for women being less secure financially is that women typically are caregivers of both the young and the elderly.  In the U.S. , 70% of mothers work, and almost one-quarter of women ages 55 to 64 care for an older relative.  Frequently, the only option for these women is part-time work; women represent 24% of the part-time workforce — twice that of men. 

Divorce also takes a heavy financial toll on women. Since 1990, women 50 years of age and older have seen the probability of divorce in their later years increase. The odds of getting divorced between the ages of 50 and 64 were 7% in 1990. Now it’s 13%. With divorce comes a division of assets, including retirement accounts and investment properties. It's much more difficult to prepare for retirement when you rely on just one income.

Another factor is that women typically are more conservative investors than men.  While 52% of men say they’re willing to take average- or above-average investment risk, just 32% of women would do the same. vs 52% men. 

Now comes COVID-19, bringing several new challenges for a woman to meet her retirement goals.  Further impediments include:

• Increased child care and/or elder care costs due to the quarantine associated with the pandemic. 
• Job loss or salary reduction due to the slow U.S. economic recovery.
• Domestic tensions from the pandemic increasing the divorce rate, as happened in China once its pandemic restrictions were lifted this spring.  
• Uncertainty in the U.S. stock market. 

What you can control

Women can create more certainty regarding their financial health by focusing on what they can control, namely:

1. Review your investment portfolio: Evaluate your allocation to stocks, bonds and cash. Compare the valuations of your statements to those of the past six months.  Have some positions gained a great deal, or have they become a larger part of your holdings than you want?  Be prudent and trim winners, and determine if there are some areas of the portfolio that promise greater upside than others.

2. Plan for the long-term: This quick calculation can determine if your current nest egg is adequate for retirement: simply multiply your estimated retirement expenses by 25. This is a “base case” for what the value of your investments should be at retirement in order to withdraw the industry standard of 4% of the total per year. 

Remember, this is without considering inflation or the fact that health care costs increase as we get older. Also, review your Social Security benefits. See if it makes sense to take these early, or are you going to have to wait until the maximum withdrawal age of 70. In addition, review your health care insurance coverage.  Will your investments need to supplement your insurance?  Finally, factor in the possibility of early retirement and/or lower wages. 

3. Increase your portfolio’s risk tolerance — wisely: Low interest rates make the traditional 60/40 portfolio (60% equities and 40% bonds) or 70/30 portfolio obsolete. Individual and institutional investors alike are reevaluating their asset allocation  to meet investment return objectives. Consider smart ways to add investment risk. Look at strategies that include stocks with high-paying dividends, writing call options, as well as good long/short managers (those that are skilled at selling overvalued stocks).  Also, if you qualify, consider opportunistic private debt and other alternative investments.

4. Be financially literate: Arm yourself with knowledge. Contrary to what the investment industry wants you to believe, investing in public markets is not rocket science. Start reading daily financial publications. Become familiar with what moves not only the stock market, but the bond market as well. You are not going to know everything, but you will discover which questions to ask.

5. When in doubt, hire a professional:  Your investments may need to support you through 30 years or more of retirement. As you age, you have less time to recover from significant market pullbacks. A credentialed financial adviser is worth their fee and can provide peace of mind in difficult times like now.  

Michelle Connell is founder and president of Portia Capital Management. She also founded Portia’s Children, though which up to 10% of her firm’s profits are donated to the North Texas charity Educational First Steps.

More: How retirees should invest in a time of record-low interest rates