March is Women’s History Month, a time to celebrate the many achievements of women, but also acknowledge that as a group, women are still vastly underpaid when compared to their male counterparts. The National Committee on Pay Equity establishes Equal Pay Day every year to mark how far into the new year women have to work to earn the same amount of money as men did by the end of the previous year.
This year’s Equal Pay Day is today, March 14, which means on average women had to work more than two months extra to make the same amount as men. This pay disparity leads to a triple threat against women in retirement:
- They earn less over their lifetime which means they have access to fewer wealth-building purchases such as homeownership.
- Social Security benefits are based on income. If a woman earns less over her career, her benefits will be reduced.
- When women are paid less, it’s harder to save enough money in their own retirement accounts.
These factors have many women wondering how to make retirement savings last. The first step is to make sure you have enough savings in the first place!
As is true for everyone else, women need to create good financial habits as early as possible. At Asset Preservation Wealth & Tax, we like to see our clients putting 10–15% of their paychecks into retirement accounts. This is especially important if your employer has a matching program for their 401(k): If you don’t save at least enough to get the full company match, you’re literally declining free money!
However, we also recognize that for many, saving that much may not be possible right now. It may be easy for someone who is highly-compensated to put 15% of their paycheck away, but for lower-paid workers who struggle to meet daily expenses, that can be much more difficult.
If you can’t save 10–15%, it’s important to save as much as you can: The more you save today, the less you’ll have to save in the years to come in order to make sure your retirement nest egg lasts.
Because they tend to be compensated less than their male counterparts, it’s especially hard for women at the beginning of their careers to save as much as they should. There’s a temptation to save less today, while planning to save extra in the future when your income has increased. That’s an insidious trap!
I’ve often told clients that if they start a Roth account for their child when she turns 16, even contributing small amounts that early can lead to millions of dollars when their child retires. By choosing to wait to contribute until you’re making more money, but are also closer to retirement age, you risk having to downgrade your quality of life in order to save enough to make your money last in retirement.
Once you are able to put more of your money toward saving, it’s important to structure your portfolio with an appropriate amount of risk. Too much risk is, well, too risky. But too little risk is also too risky!
Most people understand that a portfolio that is too heavily weighted in risky investments has a better chance of catastrophic losses than one which is not. However, many don’t consider that an overly-conservative portfolio is unlikely to gain enough value to properly fund your desired retirement. It’s great not to lose too much value, but being too safe also reduces your chances of a successful retirement.
If you weren’t able to start early, it’s important to catch up as soon as you can. It’s tempting to allow lifestyle creep to eat away at higher income from raises and promotions. Instead, increase your retirement contributions when your wages increase so you can better your chances of meeting your retirement goals.
This doesn’t mean you should become a miser! It’s important to enjoy life in the moment as well as prepare for the future. Strike a healthy balance between spending today and saving for tomorrow.
On average, women find themselves at a financial disadvantage when compared to men. That’s something we all hope will change, but until it does, it’s especially important for women to take control of their finances and take steps to make sure their retirement savings last. At Asset Preservation Wealth & Tax, we regularly help women plan for the future, starting with a complementary portfolio review.
Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.
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