1. Save Early and Aggressively
Women, on average, live 2 years longer than men, yet historically, women earn less than their male counterparts. These two factors can lead to insufficient funds during retirement if saving is not prioritized early and often. Additionally, women are more likely than men to stop working to take care of family members or take a break to raise young children. This results in lower lifetime savings due to fewer years of generating an income. To better help women save, I recommend that they create an automatic savings plan. This can be done by setting up an automatic deposit from your paycheck into your savings account. People tend to spend what is available. By paying yourself first, you reserve money in your savings account and can spend what is left. Before long, your savings account has grown without much effort or thought.
“Women are pulled in many directions and managing finances effectively early on, years before they expect to retire, can make all the difference in achieving success in retirement. However, finding the time to manage the various aspects can be difficult. For that reason, I suggest involving a financial advisor that works as a family office and acts as a financial concierge, by supporting many aspects of their financial lives to grow and sustain wealth now and into retirement,” says Nicole Keirnes Scanlon, Managing Director of Family Wealth Management at Olson Wealth Group.
2. Create a Plan
Because women often live longer than men, it is particularly important that they create an estate plan that spells out how they would like their affairs, including health care decisions, to be decided during their retirement and at death. Far too often, women put the needs of others over their own and forget to delineate a plan for themselves. Women are the ones who often take care of settling the estate of their late spouse yet fail to make clear plans for their own. This plan should take into account personal values, not just logistics. “I often meet with clients to discuss their family mission statement. This is a statement or two that summarizes how they would like their legacy to be carried out. This extends far beyond the distribution of their assets at death. It captures the values that they wish future generations to live by, which will then guide them in making financial and investment decisions”, Scanlon notes.
3. Participate in Your Employer-Sponsored Retirement Accounts
First and foremost, women should make sure that they are participating in an employer-sponsored retirement plan if it is offered to them. According to the Department of Labor, only 46% of women participated in an employer-sponsored retirement plan.. By not participating, women are literally leaving money on the table. Investing in a retirement plan allows you to earn compounded growth and interest on your money over time. For 2023, earners are allowed to contribute up to $22,500 per year, in addition to a catch-up amount of $7500 for those who are 50 years old and older. Additionally, an employer match is often offered. At the minimum, women should make sure they are contributing at least the amount needed to earn the full match offered by their employer.
If you are a woman who does not work or has taken a break to take care of loved ones at home, consider taking advantage of a Spousal Individual Retirement Account (IRA). If requirements are met, the working spouse can contribute up to $6000 into a separate retirement account on behalf of the non working spouse. Furthermore, if additional income requirements are met, you may be able to contribute to a spousal Roth IRA that would allow for tax-free withdrawals in retirement. Both options allow a spouse with no earned income to still participate in retirement savings.
4. Understand Your Allocation
Women tend to invest less frequently than men and when they do, they often invest more conservatively. While this can result in various outcomes, the point is that women need to understand their personal appetite for risk and how their allocation fits into their overall retirement plan. For those who invest conservatively, that could mean missing out on potential growth opportunities in the markets, which may result in fewer funds available during retirement. However, this conservative approach of maintaining a conservative and consistent investment objective can also bode well during times of market volatility. No matter the case, it is important that women understand their investment objectives and maintain a clear and steady investment strategy to avoid emotional decisions when the market turns south. Creating a financial plan, one that can forecast your wealth into the future can help women stay on the path to achieving retirement and enjoying their savings.
5. Demand a Seat the Table
In addition to the wage gap between men and women, a confidence gap regarding financial knowledge also exists. Traditionally, women have had less confidence around their ability to manage their finances and knowledge of investing. Whether it is a lack of time or simply interest, women should not let their perceived misunderstanding of finances and investing deter their ability to participate. Women are quite simply more competent about their finances than they believe, but this lack of confidence affects their ability to retire when and how they would like. By having less confidence, they are less likely to participate in retirement savings and market opportunities. They are also less likely to create a plan due to their fear of not speaking intelligently about finances or being misunderstood. These missed opportunities can cost thousands in the future. While seeking ways to educate herself is important, just as important is her ability to recognize intelligence that already exists and feel confident to speak to that intelligence.
Olson Wealth Group is a full-service wealth management firm. With wise counsel and clear strategies, our experienced specialists provide tailored approaches that strive to maximize wealth.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.