Three biggest
money mistakes
that women make

The loss from delaying savings is ASTOUNDING. In a retirement plan with 0 percent employer match, a recent college graduate who waits until age 30 to contribute will lose out on $250,000 in savings. For plans with a modest 3 percent employer match, the delay results in a $310,000 loss in savings. Unfortunately, the picture worsens with each decade you defer. Compared to the average single man, the average single woman’s net worth is 3 times less.[3] The sooner you save, the sooner you put that money to work for you.

 

Recommendations:

·      Start saving/investing right now whether you’re in your 20s or 50s. Can’t find the money? Lower your living expenses, especially housing and car ownership, as they’re typically the biggest costs.

·      Automate your contributions to eliminate dithering and delay.

 

Mistake #2: Don’t invest enough for retirement 

According to Fidelity, one of the largest record keepers of retirement accounts, the average employee contribution is $6,970 annually while the average employer match is $4,040 for a combined total of $10,980.[4] Unfortunately, women overall invest about 40 percent less money than men.[5] This is a by-product of wage inequality where women make about 80 – 83 cents on the dollar for doing the same work as men.[6] Unfortunately, women live about 3-5 years longer than men, which translates to about $194,000 in additional out-of-pocket healthcare costs. Further exacerbating this problem is the fact that women take more time out of the workforce to care for children and aging parents. On average, women spend 44 percent of adult life out of the workforce compared to 28 percent for men.[7] As a result, women on average earn about $1 million less than men who stayed continually in the workforce.  Less earnings means less savings.

 

Recommendation:

·      Max out your 401k every year by finding ways to cut expenses.

·      Consider maxing out a Roth IRA if you qualify and are still in your 20s and early 30s. By putting away after-tax money while you’re (likely) still in a lower tax bracket, you will benefit greatly from compounding your savings in a tax-free account with no stipulations on when you’ll have to withdraw the money.

·      Automate your contributions so you can acclimate to living on less.

 

Mistake #3: Invest too conservatively

Studies seem to suggest that women are more conservative investors than men.[8]

·       Women have less confidence in their investing abilities than men.

·       Women are more concerned about wealth preservation versus wealth accumulation.

·       Women typically earn less than men and, thus, are more inclined to hold onto what they have.

·       Women have greater context (e.g., family and friends) for investing and so are more inclined to invest more conservatively.

Regardless of what the reasons may be, you need to understand the impact of your (more) conservative investing style. When you own stocks, you own businesses. And, businesses are powerful growth engines. Additionally, by trying to lower your risk by lowering your stock allocation, you take on another risk – outliving your savings.  See below for the average gross return of  different assets.

Assets	Average gross return (annual)
Balanced mutual funds (80/20)[9]	9.5%
Real estate [10]	3.7%
Cash	2%

When it comes to asset allocation, publications have often cited this rule-of-thumb:

100 – Your age = Stock allocation

Given the financial, professional, psychological and social headwinds that women face, I’m more inclined to propose this revised equation:

120 Percent – Your Age = Stock allocation

Age	Math	Percent in Stocks
20s	120 – 20 (age)	100 percent
30s	120-30 (age)	90 percent
40s	120 – 40 (age)	80 percent
50s	120 – 50 (age)	70 percent
60s	120-60 (age)	60 percent
70s	N/A	60 percent

NOTE:  It’s always best to check with a financial professional to make sure that your allocation reflects your personal situation: age, income, assets, time horizon, risk tolerance, etc.

NOTE: Please consult a financial professional t

Recommendation: 

If your 401k offers a target date fund (TDF), consider this set-it-and-forget-it investment option. As you draw closer to your retirement date, the fund will reallocate more assets to bonds and less to stocks.

 

Final thoughts

Women face a lot of social, professional and financial headwinds.  However, by saving early, saving a lot and taking more risks, we can overcome many of these obstacles. In so doing, collectively, we will kill the prevailing bag lady syndrome once and for all.

[1]“Smart money moves in your 20s and 30s,” Nationwide Retirement Institute, 2018.

[2]“Waiting too long to save for retirement will cost you,” GoBankingRates, April 2019.

[3]“The Wealth Gap,” Investor Business Daily, July 2018.

[4]“Does your company’s 401k plan stack up with everyone else’s?” MarketWatch, June 2019.

[5]“Why women invest 40 percent less than men (and how we can change it),” NBC News, September 2018.

[6]“Why women invest 40 percent less than men (and how we can change it),” NBC News, September 2018.

[7]“Wage Gap: For women taking time off to care for family can cost them $1 million in a lifetime,” The Mercury News, April 2018.

[8]“Women and financial wellness,” Merrill Lynch, 2018.

[9]“Vanguard Portfolio Asset Allocation Models,” Vanguard, 2019.

[10]“Is buying a home overrated?” NPR, April 2019.