Multiple studies find that women are less confident about a secure retirement than men. Interestingly, that insecurity flies in the face of women’s advances on the employment front. Women now account for 51.4% of all workers in high-paying management, professional and related occupations. And between 1997 and 2013, when the number of new U.S. businesses increased by 41%, the number of women-owned firms increased by 59%. The gender wage gap is also closing, at least generationally. Data from the most recent U.S. Census shows that while women ages 55 to 64 earn 75.1% of what men the same age earn, women ages 20 to 24 earn almost 93.2% of what men earn.
To help women gain confidence in their ability to save for and enjoy retirement, we first need to recognize their unique challenges and plan accordingly. The biggest challenge, of course, is that, on average, women outlive men by about five years. Women who reach age 65 can expect to live, on average, 21 more years. This not only means women need more money to support themselves longer in retirement, but that they need to be comfortable making financial decisions alone. Many women can expect to be widows for 15 to 20 years.
Therefore, it’s important both for women to start saving early and increase their contributions over time. In particular, they should consider a Spousal IRA if they are married and not working outside the home or SEP-IRA or Solo 401(k) if they are in business for themselves. Compounded growth in tax-deferred savings plans pays off.
Women must also plan around the fact that working part-time or leaving the workforce to care for children or family members decreases their earning potential. A recent Pew Research study finds that roughly four-in-ten mothers say they have taken a significant amount of time off from work (39%) or reduced their work hours (42%) to care for a child or other family member. Roughly a quarter (27%) say they have quit work altogether to take care of these familial responsibilities. On the other hand, just 24% of fathers say they have taken a significant amount of time off to care for a child or other family member.
It’s important that even if women take time off from the traditional 9 to 5 job that they stay engaged with their family’s finances and the market. This will help prevent one of the biggest mistakes young women make — investing too conservatively. Again, given their longer life span, women need to invest for growth.