Though we live in an increasingly gender-equal world, there are some areas of business and finance in which women still lag far behind.
One of these, and arguably one of the most important, is when it comes to retirement planning.
For a variety of reasons, women find it harder to save effectively for retirement, while also requiring more savings to make for a comfortable retirement.
The solution to these issues is clear – women should save more, start doing so earlier, and look to increase the value of their savings with low-risk investments.
In this article, we’ll look at the particular challenges that women face when it comes to saving for retirement, and how they can do so more effectively.
First, let’s look at the two primary reasons why women find it harder to achieve adequate retirement savings.
The first of these factors is simply that women live longer than men, and so need more money if they are not going to run out in retirement.
Despite the gap narrowing in recent years, in the US women still live about five years longer than men do, according to the Centers for Disease Control and Prevention.
The practical outcome of this is that many women live into their 90s, but when they began to plan their retirement they only expected to live into their 70s.
This means that women either run out of private assets in retirement, and are forced to rely on state funds, or have to stretch their retirement savings thinly when they reach retirement age.
This issue is compounded by the fact that women tend to save less for their retirement than men do.
According to a 2013 report from Aon Hewitt, women contribute an average of 6.9 percent of their pay to retirement accounts, compared to 7.6 percent for men.
Over the course of a lifetime, this 1% difference can grow into one that is worth hundreds of thousands of dollars.
It’s not just that women decide to save less than men, of course. There is also a second factor which makes it more difficult for women to save for retirement effectively.
And it’s a very simple one – women still earn a lot less than men. women still make just 77 cents for every dollar a man earns, according to recent data from the White House.
The reasons for this are complex and deep-rooted. One is that women are expected to be the primary care givers in many families, and this means that they stay at home far more than their male family members, limiting their ability to work and to earn.
According to the Family Caregiver Alliance, 66 percent of caregivers are women, and many take a career break to care either for children or for elderly relatives.
One of the primary impacts of lower pay is that women save less. With less money coming in, saving a little less is a completely natural response.
However, short-term saving can often leave women with a lot less money for their long-term goals, such as staying solvent in retirement.
Closing the Retirement Gap
So what its to be done? Well, there are a few strategies that can help women to plan for a more comfortable retirement. Let’s go through them.
By far the most important factor in determining how much money you will have at retirement is how much of your income you are able to save, and how early you start doing this.
That might be easier said than done, especially for women on low salaries, but even putting a little aside each month can be very effective if you start doing this in your 20s.
There are also a number of “automatic” retirement savings plans that can help you save effectively.
In the US, using a 401(k) plan is a tax efficient way of saving for retirement, and because the money for this comes directly from your paycheck, it is easier to save it.
Secondly, it’s important to plan for a long-term retirement, and not just the first few years.
If you are going to retire with a spouse, and even though you might not like to think about it, women need to expect that they will outlive their spouse.
In practice, this means that women should have a retirement investment account set up in their own name, and not just rely on one that they share with their spouse.
This avoids the problematic situation in which your income drops dramatically following the death of your spouse, and also gives you more control over your finances.
Last but definitely not least, take a look at the long-term investments available to you. Today, it’s easy to use a platform like Wealthface to put some money aside, and invest it for the long-term.
When it comes to choosing an investment for your retirement, you should look for low risk, longer term investments.
The aim should be to realize a return at the end of your working career, not within the next decade.
This means that investment instruments that tend to grow steadily but surely – such as index funds and ETFs – are the best choice for women looking to invest for retirement.
The Bottom Line
The bottom line here is that women live longer than men, and are paid less. This makes it harder for them to save for a comfortable retirement.
However, by starting to save early, planning for the long term, and making wise investments, women can start to close that gap.