Financial empowerment helps women: reach goals, meet their needs, and maintain or establish financial independence. Whether someone is the breadwinner in their home or a stay-at-home mom with a lucrative side gig, the investment world may seem like enticing, but uncharted waters. In this article, we provide women with the information they should know before setting course so they can steer confidently into new territory.
Snapshot: Women and finances
Only 26% of American women invest in the stock market.1 Their confidence in their investment management abilities stands at 52%, while men are considerably more confident at 68%.2 There are a myriad of factors influencing these figures. Women are more likely to take time off from their jobs for parenting or caregiving and therefore accumulate less earnings over their lifetime (at retirement age, there’s a whopping $1,055,000 cumulative lifetime earnings gap between men and women).2 This wage gap can lead to an investment gap because women have less earnings to invest.
While men may happily share information about their portfolio’s earnings, over half of women would rather talk about their own death than money.2 Framing money and investments as a taboo topic limits women’s access to relevant first-hand experiences that may help them navigate their finances. As well, avoiding the topic altogether can make the investment world more of an intimidating, mysterious place than it needs to be. Encourage money and investment talk among friends and family members to help remove this barrier.
Lastly, women cite lack of confidence and knowledge as additional barriers when it comes to investments. 71% of women say the financial industry has traditionally catered to men.2 This, combined with industry jargon related to investments, may discourage women before they even start. To combat this, women should find a financial institution that recognizes the life events women may need to plan for and offers a personalized banking experience. They can also utilize resources specifically geared toward women, such as podcasts or blogs focused on this demographic.
If one statistic can quell a woman’s fears about investing, it’s this: Despite the fact stocks and Wall Street are male dominated, one study shows that women are actually better investors.3 Today, women are better educated, receive greater responsibility in the workforce, and are often the household decision makers. In fact, 40% of women serve as their household’s primary breadwinner.4
Important information for women investors
1. Instinctive investor skills
What most women don’t know is they naturally have positive investor traits. They are less likely to take financial risks compared to men. The latter demographic tends to trade stocks 45% more often than women, which can eat away at their principal.11 Women are less reactionary to financial news, which allows them to frame temporary market volatility as just that – temporary. This is a positive investor trait as women tend to hold on to investments and preserve the money they invest. Many investors are looking to reach long-term goals, and this level-headedness helps women accomplish theirs.
Women are more likely to take time out of the workforce to care for a loved one, usually a child or ailing family member. This may be the right choice, but it’s important to understand the potential impact an extended absence could have on long-term goals and what can be done to make up for it.
When a person leaves the workforce, they can’t contribute to their 401(k) or most other retirement plans. Social Security and medical benefits can also be affected. Thankfully, there are a few options to help mitigate this:
- Spousal IRA: Married women should consider contributing to a spousal IRA if they plan to take leave from the workforce. To contribute to a spousal IRA, one spouse must have earned income for the contribution year that exceeds the amount of their contribution. Keep in mind there are income restrictions and tax considerations for IRA contributions. Consult with a financial advisor to see if a spousal IRA is a suitable retirement investment.
- 401(k) allocation adjustment: Women should revisit their 401(k) or other retirement investments with a financial advisor to ensure their portfolio is properly allocated. An advisor can help determine the correct allocation for an individual’s specific situation.
- Annual increases to a 401(k): A little bit can go a long way when it comes to long-term investing. Increase 401(k) contributions by just one percent per year. Over time, with compounding factors such as merit increases, a one percent annual increase can add up nicely.
Women can set their own financial goals when they are single. Once married or committed, their priorities may shift to investments made together or for the family. 77% of women view money in terms of what it can do for their families.2 To women, investing isn’t simply accumulating money, but how the money can serve and meet the needs of the ones they love.
40% of US households have children, and the approximate cost of raising a child is over $200,000.5,6 A child can impact a couple’s overall investment plans in many ways. If a couple decides to save for their child’s college education, they may need to determine whether they can do so and still invest for retirement (Tip: Retirement savings should generally be 10 to 12 times an individual’s current income).
Understanding each partner’s goals, like paying for a child’s college, and fears is just one step in successfully investing together. Additionally, couples should commit to working as a team, review their plans often, and develop a strategy together with a financial advisor. This will help couples work as a united front to achieve their goals.
Out of the 10 oldest living people in 2021, all of them are women.10 While this longevity comes with perks, it can also affect a woman’s retirement planning. Old age often comes with increased health care costs. The average woman will pay 39% higher health care costs than men in retirement because they tend to live longer and are more likely to have multiple chronic conditions.2
Living longer means more time to enjoy retired life and save, but it also requires women to stretch their retirement funds over more years. Despite this, women retire two years earlier than men on average with less savings.2
It’s important to determine where retirement funds will come from. On average, 9% of funds are from personal investment savings including bank accounts, stocks, bonds, and mutual funds.7 Approximately 18% comes from a pension or company sponsored retirement plan like a 401(k). 30% comes from part-time employment and earnings, and 35% – the largest amount – comes from Social Security.8
Social Security benefits are calculated by looking at an individual’s top earning 35 years of working life. If an individual files for Social Security before their Full Retirement Age, they will receive a reduced monthly benefit. This is a permanent reduction that will not be restored once they reach Full Retirement Age. For every 12 months past their Full Retirement Age that they postpone starting Social Security, an individual’s benefit increased by 8% until the age of 70.9
Based on statistics, women should plan to outlive their spouse or partner. Discuss and determine when each partner should start collecting Social Security benefits to help maximize retirement income. For those who plan to enter retirement single, it is still important to determine the best timeline.
Working with a financial advisor gives women access to someone who already understands industry jargon and can help them reach both personal and family goals. Ready to begin investing, but not sure where to start? Contact Todd Blessing with Investment Services today at 513.243.4328 x173 or [email protected] or Erik Waldron with Investment Services at 513.243.4328 x305 or [email protected]*