Why women need to save more for retirement

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Rubina Ahmed-Haq

July 15, 2019


Saving for retirement is something we start hearing about as soon as we get our first full-time job. If your employer offers a workplace pension, contributions may be taken from your pay automatically. If you’ve paid off any outstanding student loans, you may have the extra funds to start thinking about saving money for when you decide to stop working. Whatever your situation is, the message is to start saving for retirement as soon as you start making money.

The classic advice we hear about retirement savings is to set aside 10% of your before-tax income every time you get paid. Then, take that money and invest it for the long term, either in index funds or dividend paying stocks. This is still good advice for those starting full-time work at 25 and working until 65 with a steadily rising income and no breaks from full-time employment.

But for anyone else, this advice can actually be detrimental to your financial health. That’s because saving this way is not going to help you achieve the retirement nest egg you need and deserve. The most vulnerable to this are women, and put simply, gender neutral retirement savings advice simply doesn’t work for 50% of the population. Here’s why.

Women spend less time in the workforce

According to data provided by Statistics Canada, women spend fewer years in full-time employment compared to men. Mostly because they take time away to have children. When they do return to work, it may only be part-time. Women are also more likely to choose a shorter work week in order to have the flexibility to juggle family responsibilities.

Add to this the fact that women live five years longer on average than men in Canada, and are more likely to be widowed in their retirement years. This means women have to save more money for a longer retirement with less money. Otherwise, they will end up with a retirement savings gap compared to their male counterparts.

Addressing the savings gap

But how wide is the savings gap? A study conducted by Financial Finesse in California calls the reality of women with lower earnings and longer lives a powerful one-two punch, and identifies this as a threat to women’s financial well-being. The study measured the retirement savings divide between 45-year-old men and women. It found that women, on average, are more than $268,000 short of what they need to retire comfortably at 65.

For the average man, it’s $212,000. This means for every $100 a man sets aside, a woman needs to set aside $126. That's a 26% gender savings gap, and requires women to save much more to achieve the same level of retirement lifestyle as men.

How can women do this? The first step for women is to make their retirement savings a priority, and to start saving more money from the beginning. This may even mean putting less money into their children’s education funds, or other family related expenses.

Next is to continue saving for retirement even when not working. This could mean asking their partner to contribute to their retirement savings. Then, when they return to work, topping up pension contributions for the time away from work allows women to qualify for a full pension in retirement. In addition, women also need to be in full control of their investments.

Whether using an advisor or investing on their own, it’s important that women know where their money is invested, and how it is performing. All of this will help protect women financially in their retirement.