Something I have never cared for is some of the sexism that I see in the financial services industry. When I see a seminar “How Women Invest”, it frankly makes me want to gag. You might as well do a seminar “How Redheads Invest”. Stereotyping how anyone approaches finance is not helpful. However, when it comes to retirement savings, women often have 3 disadvantages related to men that they have to overcome.
- Women on average have a shorter working life.
In a two breadwinner household, if there are children usually the mother is the one who will stay home and take care of the kids. Because of this, women generally are in the workforce about 8 years less than men. This does not apply to all women, but many will have 8 less years to build up that 401k account. - Women on average are paid less.
This is partly a function of 1. If you have a shorter career you don’t have as many years for raises to accumulate. But that’s to a great extent an excuse. On average women are paid 20% less than men doing the same job. This is blatant sexism in our society, and something that needs to be addressed. But for now it means that women have less income, so less money to set aside for retirement. - Women usually live longer.
On average women in the US outlive men by about 4 years. You don’t want to generalize too much. But women usually will be retired several year longer than men. That means their retirement savings have to stretch for more years.
So what does this mean for women planning for retirement? Well if it’s a committed couple, then they have a blending of both partner’s retirement savings and it might be ok. But what if that’s not the situation? In that case, a woman has to be extra vigilant about how she invests for retirement. There are two things she needs to avoid. One is not to be too conservative. No one should put all their retirement savings in bank CDs or low yielding bonds. Retirement savings need to grow. For many women it’s doubly important, given her disadvantages. She should also avoid being too aggressive. Bumps in the road in an investment portfolio are to be expected. But major permanent loses could be devastating.
For women dealing with the above handicaps, they should adopt a prudent growth oriented strategy for their investment savings. That way hopefully those handicaps will not be too big a disadvantage when retirement arrives.