I wish I could take credit for the clever slogan “A Man Is Not a Financial Plan.” It’s the tagline for the Women’s Institute for Financial Education site, WIFE.org. Women who feel they will weather any life storm often are those who shift financial power away from themselves, take long breaks from the workforce and put the responsibility for their own security in another person’s (usually a husband’s) hands. Cindy Hounsell, President of WISER, the Women’s Institute for a Secure Retirement, told me that many of the women who find themselves in financial despair following an unexpected divorce, for example, often hold their husbands wholly responsible for their misfortune—rarely aware that they played a role by relinquishing personal financial responsibility.
When women relinquish their financial power it’s often because they feel less confident than men in their ability to save and invest. Despite the fact that the majority quite capably handle day-to-day household finances (at the same time that most shoulder the responsibility to raise one or more responsible, productive human beings), the Allianz “Women, Power & Money” study reports that 61% wish they had more confidence in long-term financial decision making, and 63% wish they knew more about financial planning and investing.
Feelings of inadequacy correlate to low saving levels and financial literacy: two-thirds of women feel that vast financial information and myriad investment options are overwhelming, leaving them unsure of how or where to invest. Though financial literacy is a problem for both genders, women lag men in the ability to pass a basic quiz on how to make a nest egg last (17 versus 35%). You can take the Retirement Income Literacy Quiz yourself here.
All these facts make women sound like they just don’t have the DNA for financial management.
The fact is, though, that when when women build the confidence and knowledge they need to invest wisely, they tend to outperform men due to different personality traits—primarily the patience to trade less frequently and the discipline to adhere to an investment plan more faithfully.
Taking the steps to build financial confidence and actively participate in earning, saving, and investing is critical because:
- Women have many years to fund with—and also likely without—a partner. Women live an average of 20 years as a widow, and they often do so in perilous financial situations without adequate emergency funds. In all cases where financial issues arose after the death of a spouse, the situation would have been less precarious if the woman had kept her skills current and generated an income while her husband was living.
- Women contribute less to Social Security over their working lives, resulting in a smaller benefit during retirement. The average annual Social Security benefit for women is less than $20,000, and almost 50% of elderly unmarried females rely on this money as 90% or more of their income.
- Women typically work 12 fewer years than men over their lifetime. That means women, on average, have 12 fewer years to contribute to 401(k) plans or other tax-deferred retirement accounts.
- Only 27% of married women and 8% of unmarried women have $250,000 saved for retirement. For a household that has income of $100,000 that nest egg is well short of the $800,000 to $1 million most financial advisors recommend.
- One in four 65-year-old women will live past age 90, making more than 30 years of savings for retirement a realistic target.
- Many financial experts swear by the 4% rule, which allows you to withdraw 4% of your savings balance during your first year of retirement and then adjust subsequent withdrawals for inflation. Following this rule, they say, makes your nest egg last for 30 years. If a woman has $250,000 saved she would have only $10,000 to spend in her first year of retirement.
Women are not powerless to change these facts and it does not take a big job with big compensation—or an MBA in finance—to be on strong financial footing. Find a good financial advisor who talks to you—not over you—preferably a woman who truly understands the conflicting demands in your life. Learn the basics about life expectancy, healthcare costs in retirement, long-term care costs, how Social Security works, and savings withdrawal rates. Most of all, consider earning an income a form of caregiving for yourself and your family—and find the flexible work that fits and funds your life.