Do women need different financial planning strategies than men? Some might see that idea as sexist, but there’s plenty of evidence to suggest that they have unique financial needs.
For starters, the persistent gender wage gap means women, especially Black and Latina women, don’t make as much money as men do over the course of their careers. They’re also more likely to put their careers on pause because of caregiving duties — not just for babies, if they choose to have them, but for aging parents, other family members and spouses.
On top of that, women typically live longer than men, which means they’ll usually need more money to sustain them through their golden years.
Meanwhile, hot inflation over the past year and rising interest rates has meant that women are more likely than men to save less for emergencies, according to a Bankrate study published this week. Women are more worried about a possible recession than men are, it found, and they feel less prepared to cope with a financial downturn.
“Women do have different financial factors that they need to plan for, on average,” said Lorna Kapusta, head of women and engagement at Fidelity Investments.
Being aware of those unique factors from an early age can help women create a financial road map that hopefully lessens the chances of negative outcomes, including being impoverished in old age — something that’s more likely to happen to women, according to the nonpartisan Center for Retirement Research.
Here’s a look at how to address some of the unique financial factors affecting women, according to experts:
1. To fight the wage gap, know your worth
If you suspect you’re not being paid fairly, find out what friends in similar roles in your same industry are being paid, Kapusta suggests. If you think you should get a raise, sit down and write out a description of exactly how you’ve helped your company, and explain this in a conversation with your boss. “Make sure you’re really clear on the value that you’re providing the firm,” Kapusta said. Outline the impact your work has had, and how you’ve positively affected the organization as a whole.
It’s important to know the exact figure you’re seeking in terms of salary. Don’t just say you want a raise without an idea of what you’re shooting for.
2. Is money or work-life balance your top concern?
Since the pandemic, the value that workers’ place on the size of their paycheck has shifted. Some employees now say it’s more important to them to have a flexible work schedule or the ability to work from home than to make more money. There may be other forms of compensation or benefits that are more important to you than money.
What other ways can your employer improve your overall compensation? It could be more paid time off, or a switching to a part-time schedule but still receiving the same benefits for you and your family. Don’t get distracted by pay when what you really want is something else.
3. Get caught up on your retirement savings
If you’re over 50, you’re allowed to contribute extra money to your retirement accounts, and the new Secure Act 2.0 increased the catch-up contribution limit for people who will reach age 60 to 63 by the end of the tax year.
4. Prepare for higher healthcare costs
Women pay on average 21% more than men on healthcare costs over their lifetimes, Kapusta said. Healthcare costs are a critical component of retirement planning, but women often report that they don’t know how much they’ll need to cover those expenses, according to Fidelity’s research.
Here’s one example: A 65-year-old woman retiring in 2021 will need at least $157,000 for healthcare costs in retirement, and that doesn’t include long-term care, she added.
One way to prepare for those costs is to start a healthcare savings account (HSA), which grows year after year, and moves with you when you switch jobs. A HSA essentially acts as another form of retirement savings, but specifically for healthcare expenses.
5. Factor caregiving into your budgeting
Women are still the primary caregivers for children, aging parents and family members, so the chances of a career interruption due to caregiving duties are higher for women than for men. If you have to stop working, consider how you can keep saving for retirement during that period. One option is a spousal IRA, which lets a spouse who’s not working continue to build retirement savings.
6. Change your ‘investing’ mindset
If you don’t see yourself as an “investor,” it’s time to change that mindset, certified financial planner Kelley Long told MarketWatch last year. If you’re living paycheck to paycheck and it feels like you don’t have any money to spare to start an investment account, start with a very small amount, because it’s better than nothing.
Long advises starting your investment journey with your own personal “don’t think twice” amount of money, as in, the amount of money you don’t mind spending on an inconsequential purchase, say, $5.99 on a tank top at Old Navy. Putting that amount every month into an investment account will help grow your wealth, little by little.
You are likely to benefit from compound interest: if the market goes up, you will earn money on your initial investment, and eventually earn money on your investment’s return.
7. Women are great investors and less likely to panic
Now for the good news. Women are skilled investors who are less likely to panic and sell when markets are volatile. Indeed, more than one study has shown that women fund managers earn better investment returns than their male counterparts.
“The easiest way to start is by putting money in a tax-advantaged retirement account and investing it in low-cost index funds, a mix of stocks, bonds and other assets,” said Alex Gailey, an analyst and data reporter at Bankrate.com.
“A good rule of thumb is to invest 10% to 15% of your annual salary,” Gailey said. “Women are more risk-averse and more likely to take on the right levels of risk with their investments than men, which works in their favor long-term. Historical data shows that staying the course in investing has been a winning strategy in economic downturns.”
“Also, not for nothing: Women investors tend to post better returns than men,” she added.
Read this landmark 2001 study for more on how testosterone can be the enemy of smart investing decisions.
