Broker Check

5 Reasons Why Women Need a Solid Financial Plan

Within the next three to five years, women are set to inherit a massive amount of wealth in the U.S. And by 2030, women are expected to control much of the $30 trillion that Baby Boomers currently hold in financial assets. While this is good news, it’s important to understand the unique challenges that women face and why planning needs to be a priority.  

Below are five challenges that many women will encounter at one point or another in their lifetimes:

  1. The gender pay gap
  2. Higher expenses
  3. Longer life expectancy
  4. Delayed retirement savings
  5. Conservative investing habits

1. The Gender Pay Gap

While the gender pay gap has certainly narrowed since the 1960s, it has remained relatively stable for the past 20 years. In 2022, women in the U.S. earned just $0.82 for every dollar that men earned. Several reasons may be able to explain the pay gap: Career choice, family responsibilities, and workplace discrimination likely all play a role.

But whatever the reasons behind the wage gap, the fact remains that lower overall earnings make it more difficult for women to save for their futures. Even higher-earning women in executive positions are paid relatively less than their male colleagues with similar experience and education levels.

For this reason, women need to be extra intentional about how they save and invest their earnings. Less disposable income makes it harder to save, but as you’ll see below, it’s imperative that women do have a plan to save and invest as much as they can.

2. Higher Expenses

Unfortunately, studies show that in addition to earning less, women can also expect to pay more for certain things than men. Most of us have heard of the pink tax—the “surcharge” women pay for everyday products that are specifically marketed toward women (think women’s razors, hair care products, and clothing).  

While these items may seem trivial, there are some big-ticket expenses that women pay more for as well. Two notable examples: cars and healthcare. While one study shows that younger men and women typically pay similar prices for new vehicles, older women are likely to pay significantly more for comparable vehicles.

Similarly, women of all ages tend to spend more money on healthcare per year than men. While much of these higher expenses can be attributed to the costs associated with childbirth, even childless women typically spend more money on out-of-pocket medical expenses than men.

Therefore, it’s important that women plan for these expenses, especially given the fact that they may have less disposable income to spare.

3. Longer Life Expectancy

Additionally, retirement is more expensive for women because women have longer life expectancies than men. 2021 life expectancy data shows that men in the U.S. live 73.5 years on average, while women live to 79.3 years. This is an average of 5.8 years longer in retirement. If you’re hoping to live on $100,000 a year in retirement, that’s an extra $600,000!

The combination of a wage gap, higher expenses, and a longer retirement—which also increases the need for expensive long-term care services—means that women are hard-pressed to plan for their financial futures. And they absolutely shouldn’t leave their financial future up to the decisions of a male partner alone, as that male partner is more likely to pass away before they do.

4. Delayed Retirement Savings

Given these challenges, it’s alarming that women are more likely to delay saving for retirement, although it’s not difficult to see why they do so. Both childcare and elder care burdens typically fall on women’s shoulders, resulting in career gaps that might last for several years. And sadly, an extended career gap can have an even greater impact on women’s future financial security than the wage gap.

Due to compound interest, starting to save earlier rather than later results in significantly better savings outcomes. Below is an example to illustrate.

Imagine Laura starts contributing $500 a month to her 401(k) at age 35. She invests that money and earns an average return of about 7% every year for 30 years. When she turns 65, she has just over $600,000. As you can see in the table below, her principal balance doesn’t really start to see significant growth until about year 15 or beyond. It takes time for compounding to work.

So now let’s imagine Laura had started contributing $500 a month when she was 25 instead of 35. If all other conditions were the same and she had started making contributions just 10 years earlier, she would double her retirement nest egg by the end of the savings period. The table below illustrates just how drastically a longer savings period can impact the size of her nest egg.

This example is for illustrative purposes only. No specific investments were used in this example. Actual results will vary. Past performance does not guarantee future results.

5. Conservative Investing Habits

Finally, women are historically more conservative than men when it comes to their investments. Women are more inclined to keep greater amounts of cash on hand, while men are more likely to invest their assets. Additionally, one study by Wells Fargo found that women investors take approximately 82% of the risk that male investors take.

While this may have an adverse effect on the returns women can expect to see on their investments, there is an upside to this tendency. Women have been found to be less likely to make emotional investment decisions than men, meaning that they’re more willing to leave their investments be during times of market volatility or hop on risky investment trends.

Still, the tendency to keep too much cash on hand can have significant consequences. Not only does cash miss out on the opportunity to earn interest, but it also losespurchasing power because of inflation. Consequently, women need a solid investment strategy to ensure that the money they’re saving is working in their favor.

Women and Wealth: Financial Planning for Women By Women

Ultimately, these challenges indicate just how critical it is that women develop a plan for their financial futures. Overcoming these financial challenges is certainly possible, but it will require diligence and intentionality. Working with an advisor who thoroughly understands these unique challenges is one of the best ways women can set themselves up for success.

At Legacy Planning, I work with women from all walks of life to help them pinpoint their unique hurdles and develop a plan to pursue their goals for the future. To see if I can help you be more intentional with your money, click here to schedule a conversation today.

Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual.


View your wealth management website

Investor 360

View your Commonwealth accounts