Women face a variety of unique financial challenges throughout their lives. Here’s what you can to avoid them while working towards long-term financial stability.
The extra financial considerations women face in their lives may make the path to financial success more nuanced. And when factors like the gender wage gap are taken into account, these challenges can quite easily affect their long-term financial stability. Plus, with longer life expectancies than men, many women will need their savings to stretch further. All these factors combined mean the financial stakes are higher for women.
Here are five common financial challenges women face and how to overcome them.
The Impact of the Pay Gap on Retirement Savings
Women face a gender pay gap that can make planning for retirement more challenging without careful planning. According to Pew Research, women earned 84% of what men earned as of 2020. As shown in the example above, even seemingly small differences can ultimately have an incredibly significant impact on an individual’s retirement savings.
What to do: When it comes to retirement savings, careful planning is key. Starting early and creating a plan can help you mitigate these challenges and ensure your success down the road is heightened.
Additional Resource: In Episode 14 of Regions Wealth Podcast, we discuss the long-term impact of the pay gap on retirement savings and what women can do to prepare.
Delaying Retirement Savings
When it comes to saving for retirement, the earlier you’re able to start saving, the better. Unfortunately, data shows that many women delay their retirement savings. A 2020 survey by Transamerica found that just 68% of working women are currently saving for retirement compared to 82% of men. While there are a range of potential reasons for this, from the gender pay gap resulting in less disposable income to the financial impact of maternity leave or other types of family-related career interruptions, the long-term impact can be significant.
Using the 401(k) Calculator on Regions.com, we can estimate that a woman who contributes 10% of her $75,000 annual salary for 20 years (adjusting for inflation) could retire at 65 with $586,000 in savings. However, if she started just five years earlier, her retirement savings would be over $850,000.
What to do: Start a regular contribution to a personal or an employer-sponsored retirement account, particularly if you can take advantage of employer matching to increase your contributions. Keep tabs on your savings and work to increase your contributions over your career. One strategy to scale up your savings is to increase your contribution rate each year, such as by one percent of income annually.
Investing Too Conservatively
While studies have found that women have better long-term investment performance than men because they aren’t as reactive, being too cautious in an investment portfolio can also be a hindrance to growth. A S&P Global survey found that only 26% of American women have money invested in stocks, with the majority favoring cash or cash equivalents like bonds, CDs, and money market accounts. While these investment vehicles are viewed as less risky, they have historically delivered lower returns than stocks.
What to do: Since women are saving for a longer retirement, taking appropriate levels of risk in an investment portfolio early in your retirement savings may yield higher savings in the long run. Consider working with a wealth advisor to assess your risk tolerance and create a portfolio built around your goals and objectives.
Not Saving Enough for Healthcare in Retirement
The cost of healthcare is on the rise and for women, the costs are often higher. For example, the Agency for Healthcare Research and Quality’s 2018 Medical Expenditure Panel Survey (MEPS) data shows that women often spend more than men when treating the same conditions. Plus, given that women are likely to live longer than men, they may need more long-term care during their lives.
What to do: Women should consider setting up separate savings for future health and long-term care costs, if they haven’t already. A Health Savings Account (HSA) allows investors to set aside tax-free dollars for healthcare expenses, but it must be coupled with a high-deductible health insurance plan. Long-term care insurance can also help women protect themselves against the financial risks of requiring extended care later in life.
Additional Resource: In Episode 34 of Regions Wealth Podcast, Private Wealth Management Advisor Mike Fleischhauer shares strategies for planning for healthcare in retirement.
Carrying Too Much Credit Card Debt
Whether a result of economic situation or other gender inequalities endemic to finances, carrying too much debt can have a significant impact on your long-term financial health. According to 2018 research on Federal Reserve Data, single women, on average, experience an 18-point lower credit score than single men with similar demographics. Women are also likely to have higher total outstanding debt on credit cards. Regardless of the cause, carrying credit card debt is one of the more costly types of debt you can have.
What to do: Approach credit usage carefully. Focus on charging only what you can pay off every month on your credit cards to avoid interest charges. Seek out credit cards with the lowest interest rates. If you are carrying multiple balances, debt consolidation may help you manage and reduce high-interest credit card debt.
At Regions, our goal is to provide women with the tools and resources they need to navigate their unique financial situations. Planning for the future? Learn more about how our team can help you achieve your goals.
