Data & Research November 16, 2015

A Mars-Venus Look at How Women and Men Invest

Men are likelier to kick back and relax about saving and investing, where women exhibit higher levels of anxiety.
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Most women—eight in 10—are concerned about saving enough for retirement, with the majority, 54%, saying they are “very concerned,” according to a new study on women’s retirement planning perspectives by the Insured Retirement Institute (IRI).

Compared with men, women are more concerned about financial issues and their ability to retire. More than half of women (54%) say they are very concerned about being able to retire when they want to, and 53% of women are very concerned about being able to afford the lifestyle they want throughout retirement. But only about one-third of men share these concerns to the same degree. For men, anxieties about the timing of retirement apply to 34%, and 36% express anxiety about the affordability of retirement.

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When it comes to evaluating a financial adviser, women place much greater emphasis on a financial professional’s ability to explain financial concepts clearly without talking down to them, with 58% of women and 35% of men marking this as extremely important. Women rate more an adviser’s ability to listen well, use new technologies and consistently follow up. Women also emphasize that they want advisers to talk to them and not just their spouses, underscoring the importance of reaching out to both spouses equally.

Women have higher levels of concern regarding financial issues. The top worries? Debt, paying bills and investments declining in value. Spouses do not always see eye to eye on who takes the lead in working with their financial adviser, with 39% of men saying they take the lead, compared with only 26% of women. Men and women do not even agree on agreeing: 39% of women say they and their spouse work equally with their adviser, compared with just 26% of men.

NEXT: More “do it for me” or “with me” than DIY.

Only one in five women described themselves as a “do it yourself” investor, compared with 40% of men. Women are likelier to describe themselves as “do it with me” or “do it for me” investors.

Women have more social financial habits than men, and are more likely to consult people in their social network for financial advice: 57% of women will consult friends and family, and 40% will consult work colleagues, compared with 43% and 31% of men, respectively.

Women are disciplined savers and most (78%) are contributing to a retirement savings plan. Identifying areas to cut back is a fairly big obstacle to saving for both women (36%) as well as men (31%).  The real discipline to actually save is less of an issue for women than it is for men, with 18% of women citing this as an obstacle compared to 26% of men.

Women’s anxiety is understandable when considered within the context of a challenging landscape, says Cathy Weatherford, president and chief executive of IRI. “Income disparities and time out of the workforce are among factors that will reduce retirement savings as well as Social Security and employer-provided retirement benefits,” Weatherford points out. Women must also confront longer lifespans and the need to save more to cover those additional years of retirement income, she says, and women will need to convert their concern into positive action. “This is an area where the retirement planning community can make a significant impact, but it will require a more thorough understanding of women’s priorities, values, and preferences.”

The IRI study is based on a survey of 1,002 Americans, including 701 women and 301 men, who earn at least $30,000 annually. Respondents were between the ages of 25 and 65. The survey was conducted by Greenwald & Associates in July.

In Practice November 16, 2015

HSAs Can Be Like DC Plans for Retirement Health Costs

Health savings accounts can be used much like defined contribution plans to save for retirement, and the key to growth is investing them.
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As the increase in health care costs continues to the surpass the rate of inflation, the use of health savings accounts (HSAs) has increased with the adoption of consumer-directed health care plans by employers.

Alongside this trend, the retirement industry is starting to tout the additional benefits of HSAs as retirement planning tools.

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“Most of Americans are unprepared for health care costs in retirement, and an HSA is the best way to save for that,” said Eric Roberts, a consultant at Nyhart Actuary & Employee Benefits, during a webcast hosted by the Healthcare Trends Institute. He noted that HSAs offer triple tax benefits, and at age 65, Medicare premiums and Medigap coverage are added to the eligible expense list for HSAs.

In addition, at age 65, the 20% distribution penalty for non-medical distributions no longer applies, so those distributions are taxed regularly. Required minimum distributions (RMDs) are not required from HSAs, and HSAs are not taken into account for Social Security means testing.

According to Roberts, many employees mistakenly believe HSAs are like flexible-spending accounts (FSAs); with FSAs, if they don’t use their funds by the end of the year, they will lose them. But, he said employers need to help employees develop a new mindset; they can put more into the HSA each year than they will need and the investment will grow, just like in their defined contribution retirement plan.

NEXT: Allocating savings dollars to HSAs

Roberts even suggests employees move some of their savings dollars from their DC plan to an HSA, as long as they still get the maximum employer match contribution from their retirement plan. For example, if an employee’s DC plan matches up to 6% of his or her deferrals, and that employee is contributing 10% to the retirement plan, he or she could take 4% of the DC plan contributions and put them into an HSA instead.

And this is not exactly a wash, Roberts explains, because HSA distributions for medical expenses are tax-free, and if the employee had to take a distribution from the DC plan, the distribution would have to be enough to also cover taxes.

President of HSA Consulting Services Todd Berkley told webcast attendees that employers can even default employees into contributing to an HSA, with the opportunity to opt out, and the Department of Labor (DOL) says that is ok to do without the HSA becoming an Employee Retirement Income Security Act (ERISA) plan.

Of course, the key to growing HSA savings is to invest the money diligently over time.   

NEXT: Investing HSA savings

Berkley said the investment component of HSAs is “a hidden gem.”  Not all HSAs offer investments, but investments have been widely available and underutilized. He cited research that found after two years in HSAs, only 1.4% are investing, but after five years, 5.6% are investing, and by year eight, 10.5% are.

Focused education will help, Berkley said, and several HSA trustees as well as financial advisers have begun to highlight this capability to employees.

“Investing HSA assets is no different from investing DC plan assets,” Roberts added. “Employees just need to be made aware they can invest them.”

According to Berkley, some plans offer an HSA investment menu that is a modified version of the DC plan investment menu, and some HSA trustees offer open architecture with no restrictions on what investments can be used. He said an employer can offer the same investment menu as the DC plan; as long as the participant can decide whether to invest as well as how, the HSA is not an ERISA plan.

However, Roberts noted that any time employers make decisions about what investments to offer, they should be thinking about the best interest of participants, using the same fiduciary decision-making process as for the DC plan.

“I think we will see more employees viewing HSAs as a way to set aside dollars for retirement, and we need to educate along those lines,” Roberts concluded.

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