For women, there are four key issues you may face that can reduce your retirement nest egg. These challenges make financial planning even more important to ensuring you have a comfortable and secure retirement.
- Less time in the workforce
Despite Australian society becoming more equal, the majority of women still take on the role of primary carer for their children. This means they’re able to devote fewer hours to work, during that period. Not only does it reduce their income directly, it prevents them from securing key promotions that would put them in a higher pay bracket.
- The pay gap
The Government’s Workplace Gender Equality Agency found that males take home on average 17.1% more than women ($1532 per week compared to $1270). Over a 45 year career, this makes an enormous difference in their average financial position at retirement.
- A longer life
Women live on average 5 years longer than men. In an ideal world, their super balances would be larger to pay for that additional 5 years of accommodation, healthcare and daily needs. Unfortunately, a woman’s super payout is generally smaller than a man’s. The Association of Superannuation Funds of Australia (AFSA) says that males between 60 and 64 have an average super balance of $270,720. For women in the same position, that balance is $157,049.
- The impact of divorce
If a separation or divorce occurs, women are more likely to take on the care of the children. This can limit the time and energy that could otherwise be devoted to their careers and boosting their income. The median age for divorce for a woman is 38.5. This is an age where many women have been out of the workforce for a period of time raising children, and the divorce can be especially disruptive to their earning potential.
It’s clear from the above, that women can face more financial headwinds in life. However, by taking a strategic approach to building wealth, they can ensure they have enough in retirement. This is where financial planning comes in. But do men and women approach financial planning differently?
Financial Planning For Women
Fidelity International recently researched women’s attitudes to investing and what the industry could do to address their concerns.
In the research, 46.2% of women described their approach to investing as ‘cautious’, whereas only 26.8% of men used that descriptor. 15.7% of women described their approach as ‘confident’, compared to 26.9% of men. Perhaps reflecting this, 48.1% of women had savings or investment products outside of super, compared to 55% of men.
So, why have a good portion of women not invested outside of superannuation? The main reason given was that they didn’t have enough money to invest. However, other reasons emerged including having other priorities, deferring it till later, not knowing where to begin and believing that investing is complex and risky.
Men and women also differ on some key attitudes to investing.
- 3% of women feel that property is a safer investment choice than shares. 70.3% of men felt this way.
- 4% of women felt its better to put your money in a typical savings account than invest it elsewhere, compared to 39.3% of men.
- 4% responded that you need a lot to invest in the sharemarket, compared to 35.5% of men.
While many women crave clear information before investing, the financial industry as a whole falls short on delivering it. When asked how they would describe how investments are communicated by the industry, women used the following descriptors:
- Complicated (52.6%)
- Intimidating (25%)
- Tailored to men (20.8%)
- Incomprehensible (15.4%)
- Patronising (14.1%)
- Exclusive (17.7%)
- Aggressive (13.8%)
Only 10.3% described it as helpful and 9.7% as easy to understand.
Do These Descriptions Resonate With You?
At Novowealth, we want you to feel welcome. We believe investing can transform your future and that a small amount of calculated risk, managed over time can give you a much more secure retirement. But we don’t engage in the type of communication described above: opaque, alienating, geared towards one particular segment of society.
We provide transparent, straightforward advice that will help you make the right financial choices.
Pressure to Retire
A certain proportion of women face pressure to retire from external sources. If this means retiring early, that can ensure they retire with a smaller nest egg and reduced choices in retirement. Where does that pressure come from? A report from the Australian Government found that women who are fully retired faced ‘a lot of pressure’ from the following sources:
- Spouse or partner (11.4%)
- Other family members (5.2%)
- Your employer or other people at your workplace (24.4%)
- Your doctor or other medical experts (24.8%)
The report found that 68.4% of single women cited their own financial security as being very important when deciding when to retire, compared to 57.5% of partnered women. Men and women both reported their own health as being a key factor when deciding when to retire and 50% of men and women said that their partner’s health was a key factor in deciding when to retire. This is a reminder of the advantage of starting early in building up wealth, as sometimes the decision to pare back your income is brought on by circumstances outside your control.
Is Retirement an Enjoyable Time For Women?
Research reveals that it is. Women reported significant improvements in their relationships with family and friends, time available for leisure and overall happiness. However, they do report their standard of living, financial security and overall health as generally lower in retirement, but those are areas that good financial planning can help address.
A study from Princeton University has also found that feeling financially insecure significantly reduces your happiness. This can also apply to people on high incomes. If they’re concerned about losing their job and being unable to meet their high living costs, they can be just as unhappy as someone on a lower income, facing similar pressures. The benefit of financial planning is that it quantifies your situation to take away the certainty. It shows you how much you have now, how much you need to reach your ideal retirement and the step-by-step plan to get there.
The Difference Professional Financial Advice Can Make
Only around 23% of women have consulted a financial planner over the last 5 years and unfortunately, there is a long-term cost to that choice. Research by the Commonwealth Bank found that women who received professional financial advice had average household assets of $648,000, while women who had not received such advice had an average household wealth of $397,000. Sadly, the report found that men and women received an equal amount of budgeting and ‘managing finances’ advice at a young age, but only 29% of women were taught about investing, compared to 41% of men.
This lack of early investment education may help shape later attitudes towards investing. Because of socialising that focuses on women’s traditional gender role as household managers, many women focus on immediate and practical financial needs, centred around bills, mortgage payments and expenses, rather than the long term and more abstract focus of building long term financial security. 30% of women reported that they don’t spend much time thinking about their finances, 30% of women under 35 find managing their finances very boring and 56% of women under 24 report being confused by all the financial products and services available today. Almost one in two women also believe that they don’t need to seek advice because their assets or income are too low.
A good financial planner can help you work through these attitudes, simplify the choices and provide a solution that is tailored to your current financial position. What separates Novo Wealth from many of our peers is that we do all of this and also help you to invest in ethical financial products that do not harm workers, communities, or the environment.
Want to know more?
Speak to me about how responsible/ethical investment can help you counteract the challenges described in this article and create a secure retirement without harming workers, consumers or the environment. Whether you’d like the freedom to work less or not at all, have a positive impact on something you care about, have more family time, or travel the globe, we’ll help you plan for what matters most.
Please call 08 8363 8810 or email pgarner@novowealth.com.au to discuss.
IMPORTANT; This information is general in nature only. It does not take into account your individual circumstances. We recommend that you seek professional advice before making any investment decision.
All the best
Paul Garner CFP®
Certified Responsible Investment Financial Adviser
