Important Steps That Women Can Take to Improve Their Retirement Readiness
A well-planned and adequately funded retirement is everyone’s dream irrespective of their gender. A specific mention of gender in the statement is reflective of the fact that women too desire a financially secure and comfortable retirement just like their counterparts. But statistics on retirement savings suggest that women are lagging far behind men and are not saving enough for their time of need. A report from Morningstar stated that women in America are more likely to experience a savings shortfall in retirement as compared to men. By this record, they also have more chances of relying exclusively on Social Security to fund their living expenses during retirement, which may not be adequate. In 2017, the average annual Social Security benefit received by women aged 65 or older was only $14,353.
The gap between men and women when it comes to savings is due to several factors, such as lower lifetime earnings, small savings, preference of keeping liquid funds over investing, gender biases, pay discrepancies, longer lifespan, and higher chances of fund withdrawal in times of need, etc. Looking at these alarming records, it is about time that women assume charge and take concrete steps to improve their retirement readiness.
Here are five easy and key steps women can take to safeguard their retirement:
- Plan and save habitually
- Timely increase your savings rate
- Invest and grow your money
- Work longer and maximize Social Security
- Gain financial literacy and seek professional help
For women, the most critical step towards a financially secured retirement is to make a plan and stick to it. Planning helps you prepare a budget and set savings and retirement goals. Most importantly, it is essential to know how much you plan to save for your retirement. Ideally, it should be at least 15% of your pre-tax income. Though it can be a little challenging to achieve this rate, if you start planning early and are disciplined, you will comfortably meet or even surpass your goal. Hence, women need to create a budget, know where they are spending, and how much money they are investing, so they can create a loop for savings.
As per the Morningstar report, only 39% of American women said they were confident that their retirement savings were enough for the next 25 years. It is advisable to make a wise plan and initiate your savings early in your career because the gift of compounding can substantially help you grow your money. It is also critical to negotiate your salaries well when you are switching jobs or moving up the career trajectory. This helps increase your overall retirement funding.
While it is essential to get into the habit of saving, it is subsequently more critical to ensure that you multiply your savings with time. A stagnant saving rate is not a goal you should aim for. Ideally, your saving rate should improve every six months and take a leap with salary hikes and job changes. Women need to understand that the more they save, the more secure their retirement will be. Moreover, it is essential to realise that your retirement fund should be determined by factoring in inflation. Savings must grow to eliminate the impact of rising costs in the long run. A research from Aon Hewitt states that 83% of women in the U.S are not saving enough for their retirement, which can be highly consequential. For women who find it a little hard to set aside some funds every month, it is best to automate savings so that a predetermined amount is directed to your retirement account as soon as your salary is credited.
Women can also take advantage of other automatic investments through employer retirement plans, individual retirement account (IRA) contributions, and other taxable accounts. You can also use multiple online applications to track your progress towards your ultimate saving objective. But you should understand that savings are your future security. So instead of spending first and then saving the leftover salary, you should focus on saving first and then spending the remaining salary on other expenditures.
Women have a general tendency to hoard cash. While having liquid funds at your disposal or in a bank account might provide a sense of financial security to many, it is critical to understand how much of an opportunity loss that is. To have money sitting idle and not letting it grow further is a grave mistake that many women across the globe, including the U.S. veer towards. To improve your retirement readiness, you must understand the importance of investing and growing your money. The best idea to bolster retirement savings is to plant your funds in a 401(k) account or an IRA. These accounts provide tax benefits and also compounded returns if invested in low-cost index funds.
As per the report from Morningstar, only 68% of women in America are saving in a 401(k) account or an identical plan outside the office. This figure is drastically low compared to the 81% of men who save in a 401(k) account or a similar retirement plan. It is also critical for women to remember that diversification is your portfolio’s best friend. The risk of investment needs to be neutralized by contributing money across various instruments. Your approach should also be consistent while aiming for long-term goals. Additionally, it is very critical to invest only after evaluating your risk capacity.
It is also important for women to work longer than expected and push some boundaries since that will enhance their retirement-plan contributions, delay portfolio withdrawals, and hold up Social Security. Women are primary caregivers (two-third of all combined), and by default, their career trajectories are vulnerable to sudden bumps and disruptions. While some can balance and carry forward, others might have longer than expected or permanent interruptions. That said, women also tend to have longer life expectancies, which is why they need to work longer by striving a little hard. This will help maximize Social Security claims since women who apply for these funds at the age of 70 are eligible for an annual bonus of approximately 8%.
As per the findings from an Aegon survey, only 23% of American women survey participants could answer three basic financial questions correctly. These questions were related to interest rates, inflation, and risk diversification. Thus, to improve retirement readiness, women should take steps to get accustomed to financial know-how and acquaint themselves with the investment world, its jargons, and complex circles, etc. They must establish firm grounds in financial literacy. Women aspiring for an adequately funded retirement should aim to self-fund a substantial portion of their future reserves.
To sum it up
According to Aon Hewitt, there is a gap of 3.3 times between what women want and what they have achieved for retirement at the age of 65. This gap for men is only 2 times. It is very critical for women to adopt above-mentioned steps and improve their overall retirement readiness. They must take charge, step away from the side-lines, work longer, gain financial literacy, save more, and let their money grow. It is extremely necessary for women to aim and plan well.
Moreover, some support and professional guidance from Financial Advisor can undoubtedly help women understand the financial world and their investment needs better.