When it comes to investing and retirement planning, women face a distinctive set of challenges compared to their male counterparts.
From the gender wage gap to longer life expectancies and the nuances of investing behaviors, the financial landscape for women is fraught with hurdles. That means women investors have to factor different variables into their investment and financial planning decisions.
However, with informed strategies and mindful planning, women can overcome these obstacles. Here are the crucial considerations that every woman investor should be aware of.
The wage and savings gap
The disparity in earnings between men and women is a well-documented phenomenon, with women earning approximately 82 cents for every dollar earned by men, as highlighted by the Pew Research Center.
This wage gap, combined with career breaks often taken for caregiving duties, significantly affects women's ability to save for retirement. Data from the U.S. Census Bureau reveals that a higher proportion of women (50%) than men (47%) aged 55 to 66 lack personal retirement savings.
Enhancing cash flow through increased income and reduced expenses is vital. Strategies include negotiating for higher pay, conducting annual personal spending audits, maximizing workplace benefits, and leveraging vehicles like the spousal IRA for stay-at-home parents.
At a high level, they can improve their cash flows by increasing money coming in (i.e., income) and decreasing what goes out (i.e., spending). Strategies include asking your boss about growth opportunities and eliminating any unnecessary subscription costs.
Women should also examine their workplace benefits to determine which are applicable. For example, don’t leave free money on the table by not getting a company’s full 401(k) match. The self-employed can also set up their own retirement plan. Those without any access to a workplace retirement plan can save in individual retirement accounts or other types of savings accounts.
Longevity
Women tend to live longer than men and tend to spend more years in retirement than men. The average woman lives roughly six years longer than men, to about 79 years old.
Therefore, women must stretch their savings further. A female retiring at age 65 will likely live another 21 years, nearly three years longer than men, according to the Employee Benefits Security Administration.
Planning for longevity involves not only accumulating sufficient retirement funds but also strategically managing withdrawal rates to ensure these funds last through the retirement years.
That longevity makes guaranteed income sources such as Social Security especially important.
Being a survivor
Given their longer lifespan, women are more likely to spend their later years alone, often as a result of outliving a spouse. Women are almost twice as likely to be widowed according to research from financial services firm Edward Jones and aging research provider Age Wave.
This reality brings unique financial implications, from managing unexpected life events to inheriting wealth. Consider women are expected to inherit much of the $68 trillion in wealth that baby boomers are passing down, according to research by McKinsey.
Therefore, women need to be intimately familiar with their financial landscape, including potential changes in income sources and obligations upon a spouse's death.
Preparing for solo financial management involves adjusting investment strategies, ensuring adequate insurance coverage, and compiling a comprehensive overview of assets and goals.
Investment risk
While women are cautious investors, valuing stability and security, embracing investments is crucial for achieving long-term financial objectives.
Despite a tendency toward risk aversion, research indicates that women are, in fact, adept investors – even outperforming men. But the findings also show some women may be too cautious.
The challenge lies in gaining confidence to participate actively in the investment arena and making decisions that align with their financial goals and risk tolerance.
Education
Historical and societal biases have contributed to a financial literacy gap between men and women. With men often scoring higher on financial knowledge assessments, there's a pressing need for women to enhance their understanding of financial principles.
Engaging in financial education and seeking resources tailored to their learning can empower women to make more informed decisions about their finances.
Bottom line
Professional financial help can mitigate the effects of the potential challenges women face.
Consulting with a financial adviser offers the opportunity to address specific concerns and questions. Examples of such questions include: Do you and your family members have life insurance or long-term care insurance? If you become a caregiver, will you still be able to work? Do you have an emergency fund?
Professional guidance can play a pivotal role in preparing for the future. Get started by scheduling a free consultation with an Advance Capital Management adviser right now.
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