Strategies to Help Women Achieve Their Retirement Goals

Update: this article was originally published on August 27, 2018. It was updated on March 21, 2022 to reflect more recent statistics.

Retirement may seem like a goal that is far in your future. And yet planning and investing for retirement should start early and continue throughout your lifetime. This is true for men and women alike, but women often encounter challenges and opportunities that men do not.

Whether it’s the prospect of a longer life or the persistent wage gap, women can overcome these challenges with investing tools like compounding, dollar-cost averaging, and diversification; a strategic retirement plan; an identifiable end goal; and an appreciation for the discipline and patience that is required to achieve their retirement goals.

A longer time horizon means greater compounding power

Women tend to live longer than men, which means they need to put away more money for life after work. According to the the National Center for Health Statistics, the average life span for a female born in 2018 will be 81.2 years. For a woman who was 65 in 2018, an average of nearly 20 more years is expected. By contrast, the average life expectancy for a 65-year-old man is another 18 years.

While there is no crystal ball to tell you when your final day will come, a review of your family life history can provide greater awareness and improve your ability to plan for adequate income replacement.

Women can utilize their additional time horizon to leverage the power of compounding — the ability to grow investments by generating a greater return on an asset's earnings.

Women can utilize their additional time horizon to leverage the power of compounding — the ability to grow investments by generating a greater return on an asset's earnings. Compounding needs two things to work: re-investment of earnings and time.

Statistically speaking, women already have time on their side; the variable you need to consider is investing as early as possible to allow your initial investment and all of its earnings to grow exponentially. If at least part of your retirement portfolio is in a tax-advantaged 401(k) or a Roth IRA, your tax savings could add current and future benefits.

Dollar-cost averaging and discipline

Despite the advances that women are making in the boardroom, at home, and in their communities, a woman’s lifetime earning power is still below that of a man. A study by the National Women's Law Center found that a woman working full-time stands to lose $417,400 over a 40-year career when compared to a male.

As progress toward pay equality continues, women can find value in putting investable dollars to work building a nest egg. To help level the playing field, women can leverage tools like dollar-cost averaging — the simple process of faithfully investing a fixed dollar amount into a mutual fund or another investment instrument at predetermined intervals. Even though the amount of money invested remains the same, the number of shares purchased varies based on the market value of the shares at the time of purchase. When markets are up, you are buying fewer shares per dollar invested due to the higher cost per share. When markets are down, it is reversed: more shares per dollar invested. You can leverage this technique and buy more shares when the cost is low.

Dollar-cost averaging requires discipline providing you with the opportunity to attain an average cost per share over time. If saving becomes a lifelong habit, you won’t have to spend time and effort monitoring market movements and trying to strategically time your investments.

Periods of market volatility also require discipline, and behavioral investing studies suggest that women are better at staying the course during normal ups and downs. Bloomberg reports that men are four times more likely than women to withdraw from investments during periods of turbulence. Fundamentals remind us that the markets will recover, so women can benefit if they can see past the current economic environment to their long-term goal.

Diversification is power

When it comes to retirement planning, confidence in your choices can have a tremendous impact on the realization of your financial goals.

Embracing diversification (and sticking with it) is another key to success. By allocating funds among various financial instruments, industries, and other categories, diversification can reduce the risk in your portfolio. It aims to increase return by investing in areas that would each react differently to the same event. Although diversification does not guarantee against loss, it is an important step toward reaching long-range financial goals while lowering risk.

Speaking of risk, A recent study by Blackrock found that 41% of women haven’t started saving for retirement and tend to not see themselves as investors. Women are acquiring more wealth than ever before and are set to inherit the majority of $30T in intergenerational wealth. Now is the time for women to breakdown their fears of investing.

Index investing can also help build your portfolio and its hands-off approach eliminates many of the uncertainties and costs of an actively managed stock-picking strategy. Research has shown that 90 percent of return is based on asset class; manager selection accounts for just 1 percent of return. Paying a premium for active management is not always the way to go, especially when you account for management fees that will impact total return.

Other considerations for female investors

While relevant to both female and male investors, there are a number of other issues that should be addressed. Many are related to marriage, children, whether you are a one- or two-income family, whether each spouse is helping to fund the retirement of the other, and what might happen if the marriage were to end. You’ll want to consult a financial planner and legal advisor to get answers to these questions.

How we can help

CLA wealth advisory and private client tax professionals understand the concerns of women investors and can help you take advantage of all of your retirement planning opportunities. We’re ready to assist you in planning with objective advice, deep resources, and a commitment to helping you attain your financial goals.