Women investors face particular challenges in investing and managing their financial lives that you should acknowledge and explore with your family and a trusted financial professional. Determining the right solutions to your unique financial situation is critical. That way, you have an effective long-term strategy and can pursue a comfortable, secure retirement. While every woman and every family is different, research shows that American women face many of the following challenges:
Women Are Likely to Outlive Their Husbands
Based on research about life expectancy, on average, women outlive men. Losing a spouse is heart-wrenching, and in a family where the husband manages the finances, a widow might need to quickly take control of family accounts. Without planning, this transition can worsen an already stressful situation and lead to costly errors.
Families can prepare for this eventuality by ensuring that both spouses are involved in managing family finances. However, research shows us that many women investors are not as involved in their financial preparations as they should be. In fact, an HSBC report showed that many women are not prepared for retirement; just 24% of women in their 50s claimed to have a financial plan in place.1
A report by Fidelity Investments also found the following statistics:
• 72% of women are not comfortable making financial decisions on their own.2
• 53% of women are not confident enough to talk to a financial professional on their own.3
• Lack of involvement in financial affairs can put women in highly vulnerable positions, if anything happens to their spouses.
Women Earn and Save Less Than Men
Women investors might have fewer earnings and fewer savings than men. While there are many contributing factors, smaller paychecks and more time out of the workforce are two major causes of this disparity.
Women investors earn less than men in virtually every occupational category, making it more challenging for women to build wealth. Census data shows that despite the important strides women have made in the workplace, women’s median annual income for full-time employment is still only 81% of men’s — a difference that can add up to a lifetime loss of hundreds of thousands of dollars.4
Research also shows that women are more likely than men to be caregivers to their parents, children, and other relatives. This reduces their time in the workforce and the time they spend earning a living.5 Increased time out of the workforce results in lower lifetime earnings, less retirement savings, and less pension savings, compared to their male counterparts. These factors contribute to the earnings and savings gap between men and women, and can affect women’s financial well-being in retirement.6 In fact, women who leave the labor force early to serve as a caregiver can lose an estimated $324,044 in combined wages, Social Security benefits, and pensions over the course of their lives.7
Women Investors May Be More Conservative
Research suggests that women are more reluctant to accept risk in their investment portfolios.8 Risk aversion—pursuing extremely conservative investments or not investing at all for fear of risk — can cause women to end up with returns 10% less than a traditional male investor.9 In fact, 11% of women investors are willing to take risks and invest aggressively when saving for retirement, versus 25% of men.10 But, women also tend to invest in less risky investments and not churn investments as quickly as their male counterparts; as a result, their investing habits have the potential to generate a 12% higher yield overall on a long-term portfolio.11
Investing conservatively can be a helpful strategy, but women must be aware they should not be overly conservative. Due to the strong correlation between risk and reward, behaviors such as not taking enough risk can inhibit your portfolio’s ability to keep pace with inflation while meeting your income needs. Finding the right balance of risk and reward is key for successful investing. With strategic guidance and proactive choices, women can be very effective investors.
Preparing for the future is one of the most important aspects of financial management, and a lack of involvement leaves women potentially exposed to financial hardships later in life. Don’t expect your spouse, partner, or other family member to ensure your financial security. You must take an active role in your financial future.
We often meet with prospective clients who are divorced or widowed and are unaware of what they actually own, where their money resides, or how to access it. For this reason, we created our “Peace of Mind Checklist” as a simple tool for organizing important financial documents. We encourage you to complete this checklist and to share it with those who might need to help you deal with an unexpected situation.
We are happy to answer questions about your current financial situation and future goals. We provide complimentary consultations at any time. Should you have any questions about what you have read here and what it means for your future, please reach out. We are ready to help you build the financial life you envision.
1 “Men Still Take the Lead in Retirement Planning: Survey.” Investment Executive.
2 “Money Fit Women Study.” Fidelity Investments. https://www.fidelity.com/ bin public/060_www_fidelity_com/documents/women-fit-money-study.pdf
3 “Money Fit Women Study.” Fidelity Investments. https://www.fidelity.com/bin public/060_www_fidelity_com/documents/women-fit-money-study.pdf
4 “Highlights of Women’s Earnings in 2015.” Bureau of Labor Statistics. https://www.bls.gov/opub/reports/womensearnings/2015/home.htm
5 “Caregiving in the U.S. 2015.”National Alliance for Caregiving and AARP. http://www.caregiving.org/ wp-content/uploads/2015/05/2015_CaregivingintheUS_Final-Report-June-4_WEB.pdf
6 “Today’s Research on Aging.”Population Reference Bureau. http://www.prb.org/pdf16/TodaysResearchAging33.pdf
7 “Financial Concerns of Women.”BMO Wealth Institute. https://www.bmo.com/privatebank/pdf/Q1-2015-Wealth-Institute-Report-Financial-Concerns-of-Women.pdf
8 “Why Women Tend to Outperform Men When Investing.” Investment News. http://www.investmentnews.com/article/20160724/BLOG09/307249997/why-women-tend-to-outperform-menwhen-investing
9 “Real Data Suggest Gender Biases in Investing.” Personal Capital. https://www.personalcapital.com/blog/investing/gender-biases/
10 “2015 Regions Women and Wealth Study.” https://www.regions.com/Insights/Wealth/Wealth-Spotlight/Spotlight/Taking-Investment-Risk
11 “Gender and Investing: Let’s Set the Record Straight.” SigFig. http://blog.sigfig.com/wp-content/uploads/2015/02/SigFig-Report-Gender-and-Investing-2015.pdf