Closing the retirement savings gap

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Realistic goals, disciplined investing, and a long-term view are key components of a retirement savings strategy.

Many individuals find they have a savings gap when it comes to the amount of money they have saved versus the money they actually need to sustain their lifestyle in retirement. Particularly disadvantaged are those who have taken a career break to care for either young children or elderly relatives, the majority of whom are women. Historical pay disparities and divorce also are contributing factors.

A 2021 Gallup survey sponsored by Wells Fargo Investment Institute1 indicates that, as a result, only 20% of women are highly confident of being able to maintain their lifestyle in retirement compared with 25% of men. Moreover, given their propensity to take on more risk — 55% of men said they would be prepared to take on a lot of risk to generate higher returns versus just 39% of women — the data appears to indicate that women’s more conservative approach may cause them to fall further behind in their retirement saving goals.

Planned and disciplined often wins the race in the long run.

“Not so fast,” says Veronica Willis, an investment strategy analyst with Wells Fargo Investment Institute. “Although women tend to be more risk-averse than their male investing counterparts, survey data indicates that they are often more disciplined at sticking to their plans and seeking professional advice to develop their plans.”

Why is that important? Willis notes that investors who do not plan may be tempted to chase returns, which may result in investment missteps. Trying to time the market can lead to buying when the price of a security is already inflated and then selling low due to the fear of losing money. Both can take a toll on long-run portfolio performance.

She points to a July 2021 Wells Fargo Advisors study showing that female-led investment accounts earned higher absolute and risk-adjusted returns than male-led accounts between 2016 and 2020. “Planned and disciplined often wins the race in the long run,” Willis says. She notes that, “While women should be encouraged to take on additional risk where they have a wide savings deficit to fill, setting realistic goals and understanding the importance of a long-term horizon are equally important where retirement is concerned.”

This is good news for those wishing to close a gap in retirement savings. It also is good news for those women who responded that they lacked confidence in investing. It is possible to reach your goals by setting realistic expectations, creating a robust investment plan, and trusting your instincts to be disciplined and stick with it.

Your next steps:

  • We recommend creating a retirement budget spreadsheet to determine your potential spending. Remember to include money to cover unexpected expenses such as a new roof or car repair as well as potential health care costs above and beyond Medicare health care coverage.
  • With your budget in hand, talk to your investment advisor to make sure your investments are aligned with your retirement goals. You may need to make adjustments to your portfolio or your expectations, and your advisor can talk through your options.
  • Work with your advisor to make sure that your retirement money is being invested as tax-efficiently as possible. If you are able to save more in tax-advantaged retirement accounts such as IRAs or 401(k) plans, consider that opportunity, bearing in mind that there are penalties for withdrawing the money early.
1Wells Fargo/Gallup Investors and Retirement Optimism Index, February 2021
Wells Fargo Investment Institute, Inc. is a registered investment adviser and wholly-owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.