For many years, I have advised clients on their retirement and I have noticed a trend. Women are less prepared than men when it comes to retirement. Even well-earning, professional women or female entrepreneurs tend to end up with a smaller retirement pot.
The gender retirement gap persists for many reasons:
- Women are still earning less than men do for doing the same work.
- Women opt out of lucrative careers primarily but not solely due to motherhood.
- Women save less, partly because of family responsibilities.
- Women find it harder to obtain finance for entrepreneurial projects.
The answers to what women need to retire well therefore also lie in tackling these issues.
Women need more funds in retirement because they generally live longer.
In addition, women need more funds in retirement because they generally live longer than men do. Not only will their retirement funds need to last longer, but their retirement may be more expensive due to higher medical costs in retirement.
Over the years, I have developed a picture of what it takes to retire well. Based on this picture, I have come up with my top five tips for women:
1. Develop your human capital
Human capital is the capital locked up in your intelligence, resourcefulness, creativity and tenacity. It is your own earning power, and the biggest source of retirement capital. In the previous generation, many people built up wealth because they entered a profession – became doctors or auditors, worked hard and the end result was a happy retirement. In our time, we associate building wealth with entrepreneurship. Think Khanyi Dhlomo or Pam Golding! Entrepreneurship is not for everyone, but make the best of what you have and who you are. The key is to keep developing yourself, to keep learning.
As well as developing that human capital, you need to believe in its value and ensure that you are paid what you are worth. This last requirement is where women tend to fall short. So:
- Ask for that raise.
- Ask for the promotion.
- Apply for a position that seems beyond your reach.
2. Live within your means
I know, it seems like such a boring one but please keep reading. You may have memories of a gran who saved all the wrapping paper or who could feed a crowd with one chicken. This generation did not believe in debt; it was frowned upon to owe anyone anything. They saved. They lived frugally. They lived this way because they believed that you never knew when bad times could strike.
Take a leaf out of your gran’s book and prioritise saving. Women’s money priorities seem to differ from men’s. They might include worthy causes like family responsibility, education and charity. Sometimes women will spend on the home, while men will invest. However, in the future you may regret these choices. Take care of yourself and your retirement by saving.
3. Make use of the tax breaks
You can now save almost a third of your taxable income, tax-free in retirement products (T & C apply!). This makes a lot of sense – the government sponsors you to save. Unfortunately, retirement products have a bad name for many reasons, but do not throw the baby out with the bath water. There are cost-efficient products that will deliver attractive returns. Make the highest possible contribution to take advantage of the tax breaks.
The tax breaks and the regular contributions all contribute to a higher compounding, which is the secret ingredient with these products.
Take the time to investigate and understand your financial options. Women not only lack education in retirement products but also generally seem disinterested in understanding savings and investment vehicles. I know this sounds like a gross generalisation but my personal experience with friends and clients bear this out. Financial education is a powerful tool!
4. Use compounding to your advantage
Ideally, we should all start saving as soon as we start working. If you start saving when you are young, you do not need to save a lot towards retirement to make a huge difference. Why? You have time on your side. The years of compounding returns makes an exponential difference. By retirement, it will have grown exponentially, ensuring a comfortable retirement. A contribution of 17% of your taxable income to a retirement product should replace your income in retirement. The later you start saving, however, the more you have to put away each month.
5. Take risk
You will not retire comfortably by just putting your savings in the bank. You need to take risk with your retirement capital. You need to invest your retirement capital predominantly in shares and property, locally and offshore. However, in order to do this safely, you need time on your side. These assets’ prices can be very volatile in the short term, which is why people shy away from them. In the long-term, they provide almost the only opportunities to beat inflation, which is your first hurdle.
You do not have to know much about these investments, but when presented with the option for your retirement funds or any discretionary investment, choose the option with the biggest slice invested in these assets. Once you near retirement, this may not be the best option, so consult with an adviser.
Retiring well is not difficult or something reserved only for the rich. You can retire well by implementing a plan involving these steps.