Women and Retirement From Need to Opportunity: Engaging this Growing and Powerful Investor Segment January 2011
Overview When planning for retirement, the opportunities presented by female clients are tremendous. While longevity is an overriding issue, one cannot ignore the strides women have made in amassing considerable assets, making this a highly addressable market. In this report, we explore the reasons that women need to be concerned about preparing for their own retirement income needs, the viewpoints of women when it comes to investing, and how advisors might reach this significant population. Key Findings and Analysis The women s market presents a significant opportunity in the financial services industry, as 50.8% of working women are employed in management or professional occupations, 25.9% earn more than their husbands, and they represent nearly half of all individuals with at least $500,000 in investable assets. The average life expectancies of women are approximately three to four years longer than those of men, leading to increased costs of living in retirement, most notably long-term care, on retirement incomes that are between 56% and 82% of that of their male counterparts. Although 95% of women identified themselves as being financial decision-makers in their households, they have become increasingly open to receiving assistance so over the past few years 50% of grade themselves as needing help in some areas of managing their finances, up from 33% in 2004. Women tend to prefer qualitative means when selecting a financial advisor, as 61% cite a feeling of trust and respect as the top factor, and more affluent women consider it imperative that an advisor takes a long-term view of their needs. Between 80% and 90% of women place high value on income, principal, or investment guarantees during retirement, opening up the advisor-client discussion of retirement income solutions that incorporate annuities as an element. From Need to Opportunity Many of the reasons that women need to be concerned about planning for retirement are wellknown longer life expectancies, lower pay that ultimately leads to smaller pension and social security benefits, upward financial mobility that results in the need to replace significant income, and low self-assessments regarding their confidence in investing. The average life expectancies of women are approximately three to four years longer than those of men, as shown in the exhibit below. Although the life expectancy gap is smaller for the older segments of the population, it is still significant. Per the Society of Actuaries, today s 65-year-old female will, on average, live another 20.4 years to age 85.4, while a 65-year-old male will, on average, live another 17.6 years to age 82.6, a nearly three-year difference. Viewed another way, today s 65-year-old female has a 71% chance of living to age 80, compared to a 61% chance for males the same age.
Expected Age at Death (years) 90 89 88 87 86 85 84 83 82 81 80 Average Life Expectancies, Females and Males 40 45 50 55 60 65 70 75 80 Current Age (years) Male Female Source: Society of Actuaries Simple Life Expectancy Calculator, using Social Security Calendar Year Living longer also brings additional costs, some potentially very prohibitive. Long-term care planning is essential for all workers, yet takes on a greater importance for women for several reasons. First, according to the American Association for Long-Term Care Insurance (AALTCI), women are far more likely than men to require care. Nearly 75% of nursing home residents are women, and women older than age 65 require care for an average of three years, roughly twice that of men. Therefore, it is not surprising that a significant number of long-term care recipients (66%) are women. Single women represent the largest block of claimants (41%), while single men comprise the smallest (12%). Finally, AALTCI estimates that women provide upwards of 60% of care needed for a spouse or family member, frequently while continuing to take care of their children and job obligations. Recipients of Long Term Care Insurance Benefits, 2008 Single men 12% Married men 22% Single women 41% Married women 25% Sources: American Association for Long-Term Care Insurance, Genworth Financial 2008 Claimant Study
Additionally, women receive, on average, significantly smaller payments from Social Security and pensions than men do, requiring a greater focus on self-funding a greater portion of their retirement. According to the Social Security Administration, as published in its most recent Annual Statistical Supplement, the average monthly OASDI payment to retired women as of December 2007 was 87% of that paid to retired men. The difference was most pronounced at younger ages women between ages 62 and 69 received between 82% and 83% of that of their male counterparts. Women also do not fare as well as men with regard to retirement savings, both through the workplace and independently. Data from the Employment Benefits Research Institute (EBRI) shows that 43% of men age 65 and older received a defined benefit or retirement annuity payout in 2008, versus 29% of women. Further, the average benefit paid to women in this age group was just 62% of that paid to men. Women also lag men in the use of individual retirement accounts (IRAs). According to EBRI, 43% of IRA holders in 2008 were women, and their average balance was slightly more than half (56%) that of men. On a more positive note, the disparity for younger women is far less stark the average IRA balance for women is 89% that of men for individuals younger than 35, and 70% for those between ages 35 and 50. Although IRI expects this gap to diminish in future years, there remains a need to address the retirement income needs of women who are presently approaching retirement age. Significant Addressable Market Meanwhile, as women comprise a growing segment of the workforce, they can no longer rely on a spouse s benefits alone. And, despite marital status, the women s market is significant. Consider these statistics from the Current Population Survey, conducted by the U.S. Census Bureau and U.S. Bureau of Labor Statistics using annual data from 2008: Women comprise 46.7% of the U.S. workforce, with 50.8% of those working women employed in management, professional, and related occupations and 23.5% in this industry are chief executives 35% of women in the workforce (25 to 64 years of age) are college graduates, compared to 33% of men In households in which both spouses are employed, 25.9% of wives earn more than their husbands Women represent 37.8% of the self-employed population And, although women continue to earn less than men, their salaries are increasing at a greater rate, thereby closing the earnings gap between genders. On average, full-time, salaried women workers earned 79% of the income of their male counterparts in 2008, compared to 76% ten years ago and 70% twenty years ago.
Median Weekly Earnings (Current $) Median Weekly Earnings by Gender, 1989-2008 $900 $800 $700 $600 $500 $400 $300 $200 $100 $0 82% 80% 78% 76% 74% 72% 70% 68% 66% 64% Year Median Weekly Earnings, Men Women's Earnings as Percentage of Men's Median Weekly Earnings, Women Source: Current Population Suvery, U.S. Department of Labor, U.S. Bureau of Labor Statistics Additionally, according to recent data from the IRS, nearly half of all individuals with at least $500,000 in investable assets are women. Even more telling is that women represent nearly 40% of the top wealth holders defined as those with assets of at least $625,000 and 1.1 million women in this group had a net worth of at least $1 million. This offers a huge opportunity for financial advisors who are willing to expand their practices into the women s market. Women are open to receiving such assistance in making financial decisions, and have become increasingly so over the past few years. An examination of data from the bi-annual reports, Financial Experience & Behaviors Among Women, from Prudential, shows that 50% of survey respondents in 2010 graded themselves as needing help in some areas of managing their finances, up from 33% in 2004. Although those who identified themselves as needing significant assistance declined during this period, nearly one-third of women cite the need for help in many aspects of investing. (The survey population for these studies was females who were sole or joint heads of households, between ages 25 and 64, and annual income of at least $50,000.)
Women's Level of Preparedness for Making Financial Decisions, 2004-2010 Very well prepared 18% 23% 18% 21% Need help in selected areas 50% 47% 45% 33% Need help in many areas/beginner 32% 30% 37% 46% Source: Financial Experience and Behaviors Among Women, Prudential, 2008-2009 and 2010-2011 Several additional statistics from the 2010-2011 report further exemplify the opportunity for advisors in this market. Nearly all (95%) women identified themselves as being financial decision-makers in their households, with 25% having primary responsibility for this function. Among married women, 84% are involved in financial-decision-making, including 15% in the primary role. Additionally, 59% of women are comfortable with having a financial advisor take the lead in planning, research, and analysis, including 19% of whom stated they were very comfortable in doing so. This trend was also noted in the MetLife Study of Finances and Female Executives, published by the MetLife Mature Market Institute and the Women s Institute for a Secure Retirement (WISER) in November 2010. The survey population was older and more affluent than that of the Prudential study women between the ages of 45 and 70, earning at least $75,000 individually or $100,000 in household income yet some of the same themes emerged. Although 90% were adept in running household finances, many lacked confidence about saving for retirement. Nearly two-thirds (62%) of respondents expressed concern about having enough money to retire, while 49% feared outliving their incomes. Additionally, women in the 45-65 age group cited saving for retirement far more challenging than maintaining a work-family balance. These factors combined underscore the need for retirement planning for women, their willingness to do so, and the large addressable market it presents for advisors. Tapping the Market Successfully serving the women s retirement market requires both an understanding of women s concerns about their financial futures, and how they prefer to work with a financial advisor. As cited above, data from the MetLife Mature Market Institute shows that women are very concerned about having sufficient assets that will not be depleted during their lifetimes. Further, 42% of women surveyed for this study are emphasizing guaranteed income when planning for their retirements. Yet, knowing what to do is one thing putting it into action is another. Women are considerably less certain than men as to how to plan for their retirement needs. As reported in the Wells Fargo Advisors report, Women s Retirement Trends and Insights, women s perceptions of their inability to estimate the income they ll need in retirement is more than twice that of men s (37% versus 17%). Similarly, women are twice as likely as men to cite uncertainty as to how to invest when market conditions improve. In response, 60% of women expect to adjust their lifestyles during retirement.
70% 60% 50% 40% 30% 20% 10% 0% Selected Views of Retirement Investing, by Gender 37% 17% Unable to estimate how much they'll need in retirement 27% 14% Pre-retirees unsure as to where or when to invest when market rebounds 60% 52% Anticipate cutting back on their retirement lifestyles Women Men Source: Wells Fargo Advisors, Women's Retirement Trends and Insights, 2010 Additionally, guarantees are highly valued by women in selecting a product for retirement. According to Retirement in America: A Survey of Concerns and Expectations, released by AXA Equitable in 2010, 89% of female investors rated the protection of principal as extremely or very important, and 85% felt strongly about protecting investment returns during market declines. These results were fairly comparable to those of men, at 83% and 77%, respectively. Where the difference was evident, however, was with regard to guaranteed income for life regardless of market performance. This attribute was rated extremely important or very important by 81% of women, compared to just 69% of men. A key implication of these findings is that advisors need to consider discussing retirement income solutions that incorporate annuities as an element. Yet, an advisor must first learn ways of effectively communicating with their female clientele in order to arrive at this point. Women tend to prefer qualitative means when selecting a financial advisor. According to the MetLife Mature Market Institute, the top three factors considered by women are a feeling of trust and respect (cited by 61% of those surveyed), advisors fees or costs (54%), and a focus on the client s goals (50%). For women with household income of more than $200,000, it is also imperative that an advisor takes a long-term view of the client s needs (48%, versus 33% for all income groups.) Additionally, more than three-quarters (77%) of women have face-to-face meetings with advisors before selecting one, 67% research the advisor s fees, and 50% talk to current clients. The initial recommendation frequently comes from friends or family.
Qualitative factors also influence how women assess the service they are receiving from their advisors. In a 2010 survey by the Boston Consulting Group, more than 70% of women felt underserved by their advisors, citing disrespectful and/or patronizing advisors, and incorrect assumptions and generalizations concerning women s risk tolerances (often leading to narrower and more conservative investments). This is not to say that quantitative factors carry little weight in women s selection and retention of advisors with whom they will entrust their retirement planning. As mentioned earlier, fees are important considerations. Additionally, the MetLife Mature Market Institute cites that more than half (53%) of women investors analyze advisors investment performance and philosophy. Women of higher means (annual household incomes of at least $200,000) tend to place greater emphasis on investment philosophy and personal chemistry (28% for each attribute, compared to 15%-20% for less affluent women), and lower emphasis on knowledge of financial tools (24%, versus 40%). Therefore, there are a few key elements that advisors must consider when working with women to develop financial plans. As noted earlier, women are eager for advice, tend to be highly educated, and consider qualitative factors as well as quantitative factors when making decisions. It is crucial that advisors keep the focus on the big picture how the plans they suggest may benefit women and their families over the long term carefully consider their risk profiles and investing styles rather than making generalizations, and build up women s confidence in investing while respecting their overall decision-making acumen.
The Role of Annuities Women already comprise a significant proportion of annuity owners, as per the results of two studies published in the IRI 2010 Annuity Fact Book. According to a 2009 survey developed by the Committee of Annuity insurers, The Gallup Organization, and Mathew Greenwald & Associates, Inc., women represent 58% of owners of non-qualified annuity contracts. The 2010 Cogent investor Brandscape study concluded that 45% of owners of variable annuities (with at least $100,000 in investable assets) are women. While this tells us that many annuity purchasers are women, we need to further examine the opinions of the female population, in general, about annuities to better understand how the product can be applied to women s portfolios going forward. In its biannual research study, Financial Experience & Behaviors Among Women, Prudential determined that most women have a low, or lack of, understanding of annuities. In its 2010 report, 53% of women indicated that they do not understand annuities the highest percentage of the products about which Prudential inquired. In fact, a larger percentage of women cited a greater understanding of estate plans, trusts, and wills a trend that has been consistent with the past three reports. Although understanding of annuities is growing, there is still work to be done. Percentage of Women with an Understanding of Selected Financial Products, 2006-2010 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 84% 79% 67% 53% 55% 47% 41% 40% 2006 2008 2010 84% Annuities Estate Plans, Wills, and Trusts Life Insurance Source: Prudential, Fianancial Experience & Behaviors Among Women (2006, 2008, 2010) A study conducted by IRI in partnership with Cerulli Associates provides additional views of annuities by investors. Nearly 13% of investors cited annuities as too confusing or complex. Another 12% felt annuities were too expensive. Further, and most importantly, one-third (35%) of investors were not familiar with annuities.
Yet this same study also shows that nearly 10% of investors believe that annuities are a good way to protect their assets, and another 8% believe they are a good way to generate income. And, advisors agree. Across all channels, advisors overwhelmingly cite retirement income as the primary factor when deciding to place client assets into an annuity including 70% of wirehouse advisors and 75% of independent broker/dealer advisors. Additionally, retirement income is the predominant primary positioning of deferred variable annuities across channels, ranking highest in the bank broker/dealer and wirehouse channels. Factors Impacting the Decision to Place Client Assets into an Annuity by Channel, 2010 Wirehouse Regional IBD/Insurance Dually Registered RIA All Advisors Retirement Income 70% 64% 75% 86% 47% 67% Principal protection 61% 57% 63% 68% 41% 58% Tax deferral 30% 43% 43% 41% 27% 37% Portfolio diversification 32% 43% 40% 50% 18% 35% Client request 13% 7% 22% 45% 24% 23% Growth 17% 14% 27% 23% 10% 20% Other 0% 0% 0% 14% 26% 13% Advisor Compensation 9% 0% 2% 5% 5% 4% Sources: IRI and Cerulli Associates, in partnerships with the College for Financial Planning, the Financial Planning Association, the Investment Management Consultants Association, Morningstar, and Advisor Perspectives As noted earlier, AXA Equitable found that 89% of female investors rated the protection of principal as extremely or very important in a retirement program, 85% felt strongly about protecting investment returns during market declines, and 81% felt strongly about guaranteeing income for life. The variable annuity industry has focused on providing these types of benefits to contract holders for years. As published in the IRI 2010 Annuity Fact Book, 64% of VA contracts offered a guaranteed minimum withdrawal benefit in 2009, and 51% offered a guaranteed lifetime withdrawal benefit. The election rate for the latter was 64%, up from 51% the prior year. And, as per a report issued by IRI in January 2011, compiled by Morningstar, every one of the 15 new benefits issued by VA providers in the fourth quarter was a guaranteed lifetime withdrawal benefit in some form, indicating the popularity and importance of this feature. One impediment, however, is advisors lack of familiarity with annuities. The IRI-Cerulli study found that the greatest challenge in marketing variable annuities was attracting new advisors, as cited by 28% of insurance executives who responded to the survey. To grow the industry particularly among women it is imperative that advisors demonstrate how annuities can supplement investment portfolios. This was also the consensus among insurers, as 75% of those surveyed for the above study responded that this was a very effective strategy to gain the interest of advisors new to the annuity business.
Conclusion Advisors who shortchange the women s market are, in turn, shortchanging themselves and their practices. Comprising nearly half of the population holding at least $500,000 in investable assets, women represent a powerful, yet largely untapped, segment of the financial marketplace. Today s working women, particularly those with household incomes of at least $100,000, are highly educated, are increasingly joining the ranks of executives in the workplace, and are key financial decisionmakers in their households and are increasingly concerned about planning for secure retirements. A number of studies cite that the key concerns of woman pertaining to retirement are protection of principal, protection of earnings, and not outliving their retirement savings. This is critical, given the longer life expectancies of women compared to those of men, and the lower retirement benefits (both public and private) they receive due to lower incomes earned during their working years. Making up any shortfall is, therefore, of extreme importance in the women s market, and the guarantees offered through annuities can help provide part of the overall solution. To best serve this growing market, advisors need to understand how women tend to view the advisorclient relationship, as well as communicate how annuities can fit into a retirement portfolio. Women are already sold on the guarantees annuities provide, even as most do not believe they have an understanding of how an annuity functions. Additionally, they need and are open to having someone to help them put a plan into action. The persons they will entrust to do so need to have a balance of qualitative and quantitative attributes feelings of trust and respect for the advisor are just as much important to women, if not more so, than the advisor s historical investment returns. An understanding of the long-term needs women face is also paramount. However, getting advisors to embrace annuities is a universal issue the industry must overcome. A recent study by IRI found that insurers believe that attracting new advisors to the industry is the greatest challenge to marketing variable annuities. Among advisors who do sell annuities, most position them for their retirement income properties. Providers need to implement strategies such as holistic retirement planning to engage advisors who are annuity-averse particularly if they are to make gains in the highly addressable, albeit undertapped, women s segment of the market.