The pandemic expanded the chasm women face when planning for retirement. Many women put their careers on hold or significantly reduced their work hours to stay at home becoming educators, primary caregivers, and much more. This has left many feeling ill-prepared for retirement.
Many women, fortunately, had the option to continue working from home. However, according to a report by Qualtrics, only 13% of women working remotely with children at home say they received a pay increase compared to 26% of men. This has only widened the pay gap observed by many working women.
Why is this so important? Women already face many challenges in planning for retirement. Typically, they have shorter career spans, entering the workforce later or working fewer hours while raising a family. They also leave the workforce early to care for aging parents. In both instances, their earning power is impacted and reduces their overall retirement savings and the benefit of long-term compounded growth.
Longevity is another challenge. Women outlive men on average by 5-6 years. When planning for retirement, this means more money is required to provide for those additional years. It is no surprise that 6 women in 10 do not expect their income to last their lifetime. To say it another way, 60% of women expect to run out of money during retirement. It is no wonder women are concerned.
Luckily, it is not all doom and gloom. Women can feel confident about retirement with some advanced planning. A plan will help you understand how your current saving and investing habits will impact your financial goals and can uncover potential shortfalls in retirement income. It will help you determine how to plan for specific milestones and at retirement when to access Social Security to maximize your benefits. It will provide a strategy to manage risk and allocate your assets to outpace inflation. All of this is done with a focus on your personal financial values and goals. Over the following few issues of our Money Matters newsletter, we will dive into some of these planning concerns.
For today, we will start with the most important: saving and investing habits. In the popular book, The Richest Man in Babylon, author George S. Clason points out that a part of everything you earn is yours to keep. This means you need to pay yourself first. Just like you pay your mortgage, utilities, auto loans, etc., start by putting yourself at the top of the budget list. If you are at the top, it is more likely you will get paid. On the other hand, if you put saving at the end of the list, you may not get paid when the money runs thin.
To have money for future needs, you must love your future self as much as you love yourself today. This might mean giving up a few of the things you enjoy so you can save money for later. However, it is not an all-or-nothing choice. Take, for instance, your retirement savings. Employers provide 401(k), 403(b), or other types of plans where you contribute directly from your paycheck. The employer might sweeten the deal by matching what you put in up to a specific limit. If you are currently saving a percentage of your income, increase that percentage annually or each time you receive a pay increase. Saving 10% to 15% of your income annually will help you prepare for the future and allow you to maintain and enjoy your retirement years.
If you do not have an employer-sponsored plan, do not worry. You can contribute to an IRA or Roth IRA. Here, you can make an annual contribution or, even better, make a monthly contribution. Put everything on autopilot, so you do not have to think about it every month.
The sooner you begin saving and investing, the more compounded growth you will receive. Over time, this can amount to a large part of your nest egg. If you are just out of college with your first job, sign up for your company-sponsored plan. If you are behind the curve and retirement is not too far off, augment your retirement saving with non-retirement accounts. There is no limit on how much you can save in a non-retirement account. There is also no requirement on when or how much money you must take out of the account. You are in complete control.
Now, think about your personal situation. Do you have a plan for the future? Are you saving enough to meet your goals and maintain an enjoyable lifestyle in your retirement years? If you answer these questions with anything other than yes, give us a call. We can help assure you are on track for a successful financial future.
In the next issue of Money Matters, we will cover how inflation impacts retirement income.