September 11, 2017 / Published 10:00 AM EST / Iris Oberlaender, Staff Writer

How women can increase their money smarts to enjoy golden years

Women need to build up their knowledge to successfully plan for a financially secure retirement, says a recent study. The American College of Financial Services asked retirement-aged Americans 38 questions to find out what they know about retirement income.

The results? Three in four Americans failed the quiz, with men passing at twice the rate (35%) than women (18%). Women had the most difficulty in understanding annuity products, company retirement plans and investment considerations.

The study also found that the more women know about retirement income, the greater the chance they have a written plan for their retirement finances and long-term health.

When it comes to funding their retirement, women already have more reasons to worry: they tend to live longer than men, have lower pensions compared to men and are more likely to become widowed and require long-term care.

Faced with all these negative possibilities, it's tempting to ignore the facts and hope that everything will turn out okay. In fact, despite low retirement income literacy, 55% of female quiz respondents are still extremely confident they have enough money to retire comfortably. If that sounds like you, it's time for a retirement reality check.

7 tips on how to avoid retirement procrastination:

1. Take an active role in your financial life

Men are more likely than women to enjoy learning about financial topics and are therefore more likely to seek out financial information from a variety of sources.

How can women take a more active role? Regardless of your family situation – single, married, divorced or widowed – start with defining your goals for retirement, check what you already have in place and learn about retirement funding options.

For couples, it's a good idea to have a retirement conversation with your partner and get clear on the what, where, when and how of retiring. Once you're on the same page, discuss your goals with a financial advisor.

Don't hesitate to ask lots of questions. Make sure you understand why your advisor recommends a specific investment product, get the scoop on how annuities work and ask for regular updates on how your investments are performing. By taking a more active role, you'll gain more clarity, confidence and control over your retirement finances.

2. Run your numbers

There's nothing like getting real about your retirement finances than seeing it right in front of you. Crunching your numbers using a retirement income calculator will help you visualize how much money you'll need for retirement and how to get there.

First, start with the expenses you have today and compare them to what they may be once you retire. This simple exercise can help you determine how much income you'll need in retirement.

Next, look at the income you can expect during retirement. For most women, their retirement income comes from multiple sources, including social security, company pensions and retirement savings plans. You'll also want to list your assets, such as savings accounts, life insurance and the equity in your home.

Once you've calculated how much you'll need for retirement, commit to investing toward that goal. If you can, try bumping up the amount you save by 1% or 2% a year.

3. Get involved in household financial decisions

A separate study shows that men tend to make most of the financial decisions, regardless of age. Older consumers of both genders are more likely to make financial decisions together with their spouse or partner.

Often times though, there is a disconnect on how much finances are really a team effort... 80% of women said they shared the decision making with their spouse while only 35% of men stated the same. That's a concern since many women outlive their spouses and the time to get more involved is now, not in a time of crisis.

"Women cannot depend on their spouse to hold the keys to their retirement," said Jocelyn Wright, Assistant Professor of Women's Studies at The American College of Financial Services. "It is time to get smart on how to navigate this complex and extremely important stage of life."

4. Get professional advice

Most female respondents understand the value of financial advice and believe advisors are a good source of knowledge around retirement income.

What do women want from advisors? They're looking to them primarily for education on retirement risks, investment management, and retirement income generation strategies.

Advisors can provide a wealth of information on those topics and successfully help navigate women through the journey to retirement all while encouraging them to own their financial future. Here's how to find the advisor that's right for you.

5. Be smart about taking risks

Women were more likely to identify as risk averse than male respondents. They were also more conservative in answering investment questions. The problem is that a lack of literacy could cause women to be overly conservative and not invest aggressively enough for retirement, says the study.

While having a healthy risk aversion when you're just about to enter the retirement years can be a good thing, women may be losing out on better returns on their investments in their younger years.

A financial advisor can help assess your portfolio and give you advice around the best investment strategy based on your risk tolerance and the time you have left until retirement.

6. Take advantage of educational resources

If you're working, your employer or benefits provider may offer educational resources and workshops that you can take advantage of prior to starting retirement. Get smart about your company retirement plan and make sure to maximize your employee benefits. You don't want to miss out on free money your employer may be giving you as part of a matching program.

And don't let your confidence stand in the way of learning more. When asked about their retirement planning knowledge, 33% of women said they were extremely knowledgeable, but only 31% of those respondents passed the quiz, showing a disconnect between their actual and perceived knowledge.

7. Consider deferring social security

Working longer and deferring social security are the two best ways to improve financial security, says the study. For women, delaying the start of their government benefits makes good financial sense. They tend to live longer than men, spending an average of 22 years in retirement which increases the likelihood they'll run out of money. A Canadian woman for example, who starts her Canadian Pension Plan (CPP) benefits when she turns 70 instead of 65, increases her CPP pension by 42%.

Saving up enough to bridge the 5-year gap through personal retirement plans such as a 401(k) or RRSP is a great alternative to working longer. While there isn't a financial plan that's perfect for everyone, delaying government benefits and drawing on their personal savings first is generally a smart move for women since it not only improves expected returns but also reduces risk.

Being well-informed and having a solid financial plan will give you the peace of mind to enjoy what comes next, whether that's spending more time with the grandkids, travelling the country or volunteering in your local community.

Ready to get smart about planning for a happy retirement? Find an advisor in your area who can help you get on track.

Photo credit: Lyn Banville (1)

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