Women control $5 trillion in investable assets in the United States, and the potential for future growth is enormous. Today, women represent more than 51 percent of the workforce and are starting businesses at twice the rate of men. On the flip side, men’s retirement account balances average more than 50 percent higher than women’s. The gender retirement gap is further compounded by the fact that women tend to live an estimated five to six years longer than men.
The data shows that, on their own, many older women have less money saved to draw from, as well as higher expenses. All too often, this dangerous combination results in financial insecurity. It’s imperative to understand why this gender retirement gap exists, and what can be done about it.
- The Gender Pay Gap: Statistically, for every dollar men take home, women earn 79¢. That means women will make an estimated $530,000 less over their lifetimes, thus also reducing the amount of money they have to invest. We need to address this inequity as a society, but in the meantime, women in the workforce should not shy away from asking for a raise.
- Family Responsibility: Many women take more time off work than their male counterparts to raise children or care for elderly parents. Not working outside the home means more than just losing a paycheck. It also means having less disposable income to invest in the long term and may translate into lower Social Security benefits.
- Cost of Living: Life as a woman actually costs more. For starters, think wardrobe and personal care. And while there may be little we can do to reduce some of these costs, there are still ways to combat this problem. For instance, women often end up paying more for items such as mortgages and cars. By vigilantly researching the best loan rates available, women can negotiate from a stronger position and potentially reduce excessive costs over a lifetime.
- The Gender Investment Gap: Although women actually save more of their disposable income than men, they tend to invest less of it, leaving a lot of their money in cash or low-yield savings accounts. But when women put together personal plans to bridge the gender investment gap, it can have dramatic, positive consequences for their financial lives. Before we explore ways to move forward in a positive direction, let’s talk about why women often show hesitancy when investing. It’s likely that they’re buying into one or more of the many myths about women and money.
Negative stereotypes and myths about women and finance:
- Men are better investors than women. Not so. Research shows that when women invest, they tend to be highly successful, outperforming men. Not to mention that funds managed by women consistently outperform their alternatives.
- Women are too risk averse to invest successfully. True, many women are risk averse. But wait. Can’t caution in investing actually be a virtue that helps you better weigh your options and avoid making poor or rash decisions? Yes – so long as you keep in mind that some risk must be taken in order to realize the returns needed to grow your wealth. This shouldn’t present a problem for women, or any investors, when the connection between their values, goals, financial plan and investments is clear and all are in alignment.
- Women don’t have enough financial education to make a financial plan. Although this myth represents a gross generalization, there’s no denying that everyone could benefit from getting a better financial education. Not having one, however, has never stopped men from investing.
Moving ahead with saving and investing as a form of self-care:
- Budget: Try to think of budgeting as less about numbers and more about personal awareness. It’s a check-in to see whether you are spending on the things that matter to you most. Set boundaries that ultimately will set you free to create and pursue the life you desire.
- Save: Putting aside money is actually a way of caring for your future self. The rule of thumb is to save 15-20 percent of your income, but if you can’t do that, save as much as you realistically think you can. Just as you go in for regular health check-ups, do frequent check-ins on your financial well-being. Ask yourself if there isn’t more you can do to protect your financial welfare.
- Invest: The need to invest can be compared to our need for exercise. We exercise to fight the corrosive power of aging and maintain our health. We invest to fight the corrosive power of inflation and maintain our financial health. Your savings should be invested, rather than kept in a money market fund with low interest rates. Otherwise, inflation will erode the value of your assets.
- Insure Yourself: It’s a little-known but important statistic that 80 percent of men die married while 80 percent of women die single. Life insurance and long term care insurance should be seriously considered in women’s financial planning.
- Take Responsibility: You would never cede big decisions in your life to other people, like who to vote for or how to take care of your kids or aging parents, so make sure that you are also participating in financial planning. It is highly likely that, someday, you will be the only one responsible anyway. A study performed by the National Center for Women and Retirement Research estimates that 90 percent of all women – single, divorced or widowed — will be in charge of financial matters at some point in their lives.
To create the best possible future for yourself, start planning for and investing in your future today. We would be happy to have an exploratory, no-obligation conversation with you. Feel free to give us a call at OpenCircle, 203-985-0448.