Women have made great strides as professionally qualified college graduates who are able to live independently, yet one unfortunate fact remains: women are lagging behind men on retirement planning and saving.
Women must focus on planning for retirement, because, on average, a female retiring at age 65 can expect to live another 19 years, three years longer than a man retiring at the same age. Maximizing savings can increase a woman's chances of reaching her goals and having enough money to last through her retirement, according to the U.S. Government. The contributing factors to why fewer women are financially prepared for the future are striking, and apply to many women regardless of their age or life stage.
Recent studies have indicated that:
- Only 45 percent of women in the workforce participate in a retirement plan, according to the U.S. Department of Labor.
- More single women (69 percent) said they relied on their own research or family and friends for financial guidance than married women (63 percent), and single women were less likely to work with a financial professional (21 percent) than married, divorced or widowed women (31 percent).
- Generation Y (age 25-34) women are more likely to save for big purchases such as vacations as opposed to retirement or buying a house. Additionally, the survey found that most 20-somethings put off thinking about retirement until they're approaching age 30. Many Generation Y women also hold education debt throughout their 20s and the survey found debt overall increasing with age: 20- and 21-year-olds hold about $12,000, and those who are 28 and 29 hold more than $78,000.
- Only one-third (33 percent) of women ages 50-64 have a formal investment plan to reach their retirement goals. This does not make women bad money managers. In fact, studies show that the majority of married women actively participate or take the leading role in handling family finances. The obstacles, however, weigh in heavily.
While the income gap between men and women has narrowed in recent years, mothers tend to spend more time out of the workforce due to care giving responsibilities. This has a significant impact on their earnings and savings potential, and also reduces Social Security benefits down the road. Statistically speaking, odds are that women who are married will inherit wealth in their later years and they may have already inherited money and assets from their parents in previous years. At PNC Wealth Management, we are seeing this trend firsthand, and are committed to bringing financial information and resources to successful women. The effects of “compounding,” or letting your money make money for you, is a proven way to build wealth. Here’s a starting example: if you are 22 years old and begin to contribute just $100 a month to a 401 (k), you could have as much as $447,494 in savings at age 65 (assuming you earn the average return of 8 percent annually). However, if you put off your contribution for just one year, you will have $35,445 less. And if you wait five years, you will have $152,063 less awaiting you when you retire. It is still possible for women to plan for a successful retirement by following these three strategies:
- Become informed. The rules are different for defined contribution and defined benefit plans. Learn about the retirement benefits that are available through your employer, and actively participate in any plans offered.
- If you work and if you qualify, join a retirement plan now. Give until it hurts, and then, give some more. Definitely contribute the full amount that your company will match. Not doing so is like turning down a free gift. Every year, you should rebalance and automatically increase your contribution by 1 or 2 percent, if that option exists.
- Seek help. If you are able, seek the help of an experienced financial planning expert. Contact local professional/trade associations, women’s groups, community colleges and adult education centers in your area for information on investment or personal finance seminars taking place.
- Take charge. Recognize the unique challenges you may face, and start saving and investing as early as possible to overcome them.
- Spend wisely. You may want to consider trimming expenses while still enjoying life. Some suggestions include: downsize to one car from two; limit eating out at restaurants; cut memberships that are not used regularly; and do household chores that are paid to others to handle. And, no, you probably don’t need that new pair of shoes.
- Invest wisely and learn how to improve your investment returns. Obtain as much information as possible from your employer and build a portfolio. People in their 20s should look at aggressive investing and stay the course, even during volatile markets.
Anita Lohman, CFA is Vice President and Senior Investment Advisor at PNC Wealth management’s office in Orlando and she can be reached at 407-245-2469 or [email protected]