How women can save for retirement

Saving for retirement is one of the most important financial tasks anyone will take on in their life. But for many women, it is a daunting one. This is especially true because of the financial disadvantages women face.

Thanks to women shouldering more student debt and making less on average than men, women often have less available income to put toward investing than men do – and less time to save, since women are more likely to take breaks from the workforce.

For some, using available money to pay down debt is a much more pressing matter. Depending on how much you’re making versus how much you’re spending, “it may make more sense to pay off debt before investing,” says Janet Griffith, investment advisor representative at AssetBuilder in Plano, Texas.

This is especially true for those carrying a high amount of debt from credit cards or other high interest debts. But even if you’re not financially ready to start investing, making a plan to fund retirement is an important first step – and it’s something you can do now.

Why women need to invest

Transamerica’s annual retirement survey of workers found that, despite women’s increasing educational and career opportunities, they continue to be less prepared for retirement than their male counterparts.

“I have seen studies … that women have invested less. Traditionally, they feel less empowered to invest, and that’s their biggest financial regret when polled,” says Corbin Blackwell, financial advisor at Betterment. “The best thing you can do with your money is doing something.”

Putting any amount of money away for retirement is better than nothing. But not having a goal – or a plan to get there – could leave many women with significantly less than they need, because saving for retirement is about more than funding a luxurious life after leaving the workforce. Given how much money it takes to fund 15-plus years’ worth of expenses, the vast majority of people aren’t going to be able to save enough money for retirement without investing.

“It’s important to invest because we are living longer and need to stretch our finances even further to satisfy expenses and afford health care,” says Griffith.

Out of the women surveyed by Transamerica, the average amount of money their household had saved for retirement was $23,000, while men reported an average of $76,000. This $53,000 disparity is concerning.

How much should you save?

Because women’s life expectancy is consistently longer than men’s (and women often pay more for products and services than men do), the average woman will likely need more money in retirement than the average man. Despite this, 54% of women in the Transamerica survey reported that they guessed the amount of money they’d need for retirement.

Unfortunately, planning for a goal as big as retirement can feel a little like guesswork – no matter how prepared you are. And what you need might not be what your friend, co-worker or family member needs.

“[I have a] sister who is 18 months older than me, living in a different part of the country [and] our financial planning needs and savings are totally different,” says Blackwell, who lives in New York City.

For someone living in a less expensive area of the country, $2 million might be enough for a comfortable retirement with a good standard of living, whereas someone in New York City would need more to maintain the same standard of living.

But location isn’t the only factor. Deborah Armin, a financial advisor at First Command Financial Services in central Texas, works with clients who are nearing retirement age with that amount of money in assets – yet are continuing to save because that amount won’t cover their desired standard of living.

Since location and standard of living are two huge components of your costs in retirement, using your current salary – along with projected raises – can give you a good baseline for how much you’ll need per year. Fidelity found that “most people need somewhere between 55% and 80% of their preretirement income.”

The actual percentage you’ll need should be based on your own spending patterns and how you want to live in retirement. Since you’ll have much more free time and fewer commitments, you’ll need to find new ways to fill your time. If you want to travel extensively or take up a new, expensive hobby, you might need a higher percentage than someone who wants to stay in one location or volunteer.

Once you decide how much you’ll need per year, estimate how many years you’ll need to be financially independent, based on when you want to retire and what your family’s life expectancy is.

After you have those numbers, use a retirement calculator to determine the exact amount you’ll need to save each month. Since many factors, like Social Security, investment return and inflation are somewhat out of your control, using a calculator that includes allowances for these can take some of the guesswork out of planning.

Where to invest

Financial institutions offer investment vehicles that are specifically for retirement. In exchange for tax benefits tied to the account, money that you put in an account is tied up until you turn 59 and a half, or have a qualified expense. Taking it out early will result in a tax penalty.

While these tax benefits definitely make these accounts worth it, you’ll usually want to keep your retirement savings separate from other investment goals, since you can’t access this money as easily as other investment accounts.

If you don’t know how to start investing for retirement, start with your employer. Many companies will offer employees the option to invest in a company-sponsored retirement plan, known as a 401(k). This is a very easy way to start investing since your HR representative will likely be able to answer any questions you have.

“Many companies offer to match retirement contributions to a 401(k) or similar plan,” says Griffith. “This is one of the easiest ways to build retirement wealth.”

If your company offers to match contributions, they’ll add a monthly contribution to your retirement account, but only if you contribute that amount too. Even if you are waiting to save for retirement until you reach other goals, you should consider contributing if your company offers a match. If you aren’t getting the match, you’re basically turning down free money.

If you work at a nonprofit organization or are self-employed, you might have something similar to a 401(k). If you don’t or you could benefit from an additional retirement account, you can open an Individual Retirement Account (IRA).

Identify your risk tolerance

One of the biggest mistakes you can make when planning for retirement is putting your money in investments that do not fit the level of risk that’s best for your situation. Most of the time the older you get, the less risk you can handle. This is because your investments won’t have as much time to recover from a market downturn.

To account for this, many investment companies offer retirement portfolios that change in risk as you age. So, while you’re young, a higher percentage of your money will be in investments with more risk, because those will have a better chance of having a higher return. As you age, a higher percentage of your money will be placed in less risky investments.

While age is one of the most important factors to consider when deciding where to put your money, you’ll also want to consider how comfortable you are with risk.

“Ultimately you need to be able to sleep at night when the market isn’t doing so well,” says Griffith. “If you think you will panic and want to take your money out of the market, then you can’t tolerate a lot of risk.”

While emotions play a part in investment decisions, this doesn’t mean you should keep all of your money in no-risk accounts just to alleviate anxiety. Low-risk investments tend to have a lower rate of return, and most people will need to take on some risk for their contributions to grow enough to fund retirement. If you spread out your money in different companies and types of investments, you’re unlikely to lose everything when the stock market fluctuates.

“Although there is risk involved [in investing], it’s not as bad as [people may] think it is,” says Armin.

See related: Investing tips for women

Know when to ask for help

If you’re willing to put in research, it is possible to plan for retirement on your own. But if don’t want to put in the time or your situation is complicated, you might want to get some additional help.

Professional help

If you don’t feel confident preparing for retirement without professional help, finding a financial advisor to help you create a financial plan and make investment decisions for you can alleviate some of the pressure.

“Financial advisors know how to help you invest your money to meet your goals,” says Griffith. “Look for an advisor who will listen to you and understand your financial goals and needs.”

If you decide to look for a financial advisor, make sure you’re working with a licensed advisor who will pick investments that are good for you – not that will make them the biggest profit. FINRA’s BrokerCheck or the Certified Financial Planner (CFP) website can be a good place to start the search.

Digital planning tools

Some digital planning tools go beyond a retirement calculator and help you figure out how to allocate money for all of your goals, based on the information you give them.

For example, in lieu of financial advising, Wealthfront created a digital algorithm that can help investors figure out how all of their financial goals can work together. This software is free – even if you don’t invest with them.

“Some people might think that [Wealthfront’s program] is one size fits all,” says Shay Vyas, senior communications associate at Wealthfront. “But you can really personalize it to your individual needs.”

There are many different strategies that can help you save for retirement. But the most important thing is to just get started. For one thing, starting earlier means you’ll need to invest less per month. And with the extra time your money has to grow, you might even see higher returns.

“Procrastination should be a four-letter word,” says Armin. “The earlier you start, the better off you are, [and] the less you can put away and get the same result or an even better result.”

Griffith concurs: “The sooner you get your money working for you, the sooner you can concentrate on doing the things you love.”