Women’s confidence in daily financial activities such as bill paying and budgeting is on the rise. But most women are still concerned with their ability to plan for long-term investment goals, a new report finds.
When it comes to long-term financial planning, 44% of women share that their biggest financial regret is not saving and investing sooner, according to the 2022 Women, Money and Confidence survey from Bank of America.
What’s keeping them on the sidelines? Over 30% of women admit one barrier is not having the proper knowledge. This pushes back the start of their investment journey, decreasing their future retirement income in the process.
Despite their uneasiness, saving for retirement remains the most important short- and long-term financial goal for women, according to the report.
Before beginning your investment journey, “the first step is to make sure you are really ready to invest and have your budget in line,” says Rachel Rabinovich, certified financial planner and director of coaching at Ellevest, an investing platform.
Rabinovich suggests women think of retirement as the ultimate form of self care. “Planning for the Future You is really taking care of yourself today.”
Most importantly, there isn’t some secret, complex knowledge necessary to invest successfully. Here are four simple things women should know to begin saving for retirement.
1. Start early and be consistent
One of the most important things to know about investing is that the sooner you start, the more opportunity you have to grow your wealth.
“If you start at a younger age, you’ll have higher savings,” says Kevin Crain, head of thought leadership for Bank of America’s retirement and personal wealth solutions group. “I want you to do one thing, just start saving immediately in your 401(k) and health savings accounts at whatever level you can.”
Starting early gives your money greater time to compound interest. For example, a 25 year old contributing $100 monthly to their retirement fund would have $62,000 by age 67, assuming 5% annual returns. Someone who waited until they were 35 to start contributing the same amount, on the other hand, would only have $33,000 by retirement. A ten year difference significantly decreases the amount of retirement savings.
This difference is especially important for women because a majority report leaving the workforce for an average of four years during their career to care for children or elderly family members.
2. Plan for retirement needs
Women in the U.S. have longer life expectancies than men, on average, resulting in a need for greater retirement income in their later years. Keep that in mind when using typical online calculators for retirement needs, as they may not factor in gender differences.
For example, $100,000 in a retirement portfolio may seem like a lot as a lump sum, but when broken down over a possible 30-year retirement it leaves the retiree with less than $280 per month—which simply isn’t enough, says Ellevest’s Rabinovich.
“It’s important to take time and visualize what you want your life to be in retirement,” says Rabinovich. Focus on factors like where you want to live, how you want to spend your time, and what legacy you want to leave will help you determine your full retirement needs.
Consulting a financial planner who is aware of the differing needs between men and women can also help ensure a comfortable retirement. Over half of women surveyed by Bank of America reported they have increased comfort discussing finances with another woman.
Financial planners are not one-size-fits-all so you want to ensure they are listening to you and meeting you where you are at. Whether you find them through the internet, or a recommendation, making sure they are a good fit is a priority, adds Rabinovich.
“We spend a lot of time making sure we have good doctors, so it’s really important to vet financial planners in the same way, ” she says.
Consider consulting a fee-only certified financial planner to discuss specific retirement needs.
3. Contribute to retirement plans
If your employer offers a retirement savings plan, such as a 401(k), it is crucial to sign up and begin contributing as much as you can, as soon as you can, financial advisors say. Your employer may even match your contribution up to a certain percentage, essentially giving you free money towards your retirement.
“Automate, automate, automate,” says Rabinovich. Routing your money into your retirement account automatically—rather than having it hit your bank account and then manually transferring it—provides tax benefits, as well as alleviates any opportunity to spend it.
Financial advisors typically recommend contributing 12 to 15% of your annual income to retirement (that includes your employer match, if you get one). A Roth IRA is another great option for retirement savers.
Even if you didn’t begin saving in your 20’s, it’s not too late. Many 401(k) plans offer catch-up provisions allowing workers over 50 years old to contribute an annual amount up to $6,500 in 2022.
If you are self-employed, consider opening a SEP or SIMPLE retirement plan. If you are married and do not work, a spousal IRA will provide tax advantages.
4. Ask questions and share knowledge
Becoming involved in finances and taking action provides a sense of empowerment for women. Nearly half of women aged 22 to 39 reported personally researching a topic that leads them to a financial decision, versus 32% in older generations. The drive to self-educate and share information paves the way for a promising financial future, says Crain.
Consider participating in networks for women to share experiences and learn from other women about how to create a plan that is tailored to specific gender needs. Rabinovich suggests finding an accountability partner like a partner, family member, or friend may help keep women on the right track to retirement.
“Women put off investing because we prioritize everything else,” says Rabinovich. But “everyday you are not investing can actually cost you money.”
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