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June IRA Insights: Women and Retirement

Jill was a stay-at-home mom with two active children under the age of 6. Although Jill had a degree in education, she had only worked two years before starting her family with her husband Steve.

By: Catherine Wynne

IRA Insights

By: Catherine Wynne

Jill was a stay-at-home mom with two active children under the age of 6. Although Jill had a degree in education, she had only worked two years before starting her family with her husband Steve. Two years with the school district was not enough to earn a pension, but Jill was able to contribute to an IRA over the years through a spousal IRA.

After about 6 years of watching her IRA go up and down but not netting over 2% in the stock market, she decided her IRA needed a change. She knew nothing about what her stock broker invested in and left all the decisions to him. After the 2002 stock market "adjustment," Jill wanted out.

One day, while talking to another mother at her children's playgroup, she noticed some of the kids were wearing interesting, easy-to-remove footwear. The other mother told her a local company in Boulder was developing this light and colorful footwear designed for children and adults alike. She was attracted by the low cost of the product and its broad appeal. Jill liked the product so much she decided to jump in. The stock was not yet publicly traded but when she heard that it could be acquired through a self-directed IRA, she made her move. By the time the company went public, the shoes were already a sensation. The stock doubled and then doubled again. Jill's small investment yielded an enormous return after she sold it. Just think-it started as a casual conversation at a playgroup session. Jill is taking care of her retirement, but not all women have gotten the "heads up."

According to the Department of Labor, the statistics on women approaching retirement are grim.

Did you know:

• Of the 60 million wage and salaried women working in the United States as of March 2005, 53 percent did not participate in a retirement plan. Remember, even small amounts can earn interest and add up over time.
• Women are more likely to work in part-time jobs that don't qualify for a retirement plan. And working women are more likely than men to interrupt their careers to take care of family members; therefore, they work fewer years and contribute less toward their retirement. If you work and if you qualify, join a retirement plan now.
• On average, a female retiring at age 65 can expect to live another 20 years, 3 years longer than a man retiring at the same age. Savings can increase a woman's chances of having enough money to last during her retirement.
• By and large, women invest more conservatively than men and receive lower rates of return from their investments over time. Choose carefully where you put your money and learn how to make your investments grow.

The 53% Category
There are other reasons why women lag behind in their retirement savings: raising a family while supporting their husband's career, divorce, and the lower average salary of women compared to their male counterparts.

The last point made by the Department of Labor article that "women invest more conservatively" is also applicable considering the only retirement investment choice presented to women (and men!) over the last 20 years for IRAs has been securities. If women as a group are not comfortable with risk, it is likely that the 53% without retirement savings defined above do not have the knowledge or exposure to investments that create a level of confidence.

Self-Direction: Building a Portfolio Based on Personal Experience
This is where self-direction in IRAs and other retirement plans comes in. If you are a doctor, you might gravitate towards investments involving medical technology or investments you learn about through other doctors. Your CPA might also make you aware of investments because he or she is personally aware your financial situation.

If you are a commercial real estate broker, investments may come to you in the form of great deals on properties. As a broker you can buy wholesale property or find lending opportunities that arise out of the real estate transactions going on around you in the office.

If you are an engineer, you may also learn about investments through other engineers' investments or may gravitate towards technology-based securities or private development companies.

If you are the primary caregiver, you are the target market for numerous food, clothing, safety and entertainment products. Just like Jill, you could ride the crest of a successful business before it gets big.

Women Investing in "What you Know"
How do average women-the remaining 53%, defined above as part time; transient: not the primary wage earner; or out of the workforce-find investments with which they can be comfortable and successful?

The simple answer to this question is to make all investments available to women, not just those involving securities. Women can invest in what they know, just like their male counterparts. These could include investments in startups involving goods and services for families with children lending on competitive but lucrative terms to their circle of acquaintances, and various forms of real estate ownership and its derivatives. Carrying the idea of "investing in what you know" to women who do not maintain a consistent work history because of family obligations should be a goal for every woman, especially those who fall in the 53% category.

Catherine Wynne is a principal in Entrust New Direction IRA, Inc., a licensee of The Entrust Group (TEG). TEG has been, since 1981, the leader in self-directed IRA, Roth, SEP and 401(k) administration. New Direction, in Lafayette Colorado, provides administration services as well as continuing education for tax and investment professionals and the general public.

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