In our last article, we examined the reasons why women haven’t seen themselves as investors, and we now know that women are just as capable as men are of achieving financial literacy and investing successfully. To begin the financial planning journey, it’s important to understand the differences in how men and women accumulate wealth over time, the unique pressures women face, and how they can diversify their investments and increase their confidence in planning for funding later life.
Beyond the Pay Gap: The Wealth Gap
Not only do women typically earn less than men over time, they can also face a series of other financial challenges unique to their gender:
- Longevity is a factor for everyone in financial planning, but even more so for women, who outlive their male partners by an average of five years.1 By age 85, women outnumber men two to one, and 77% of people whose spouse has died are women.2 Furthermore, 81% of centenarians are women.3 Increased longevity means increased healthcare expenses. The average woman will have 39% higher health costs than the average man in retirement.4
- Caring for elderly parents also poses a major financial challenge to women. Two-thirds of care provided to older adults is done by women.5 Time taken away from work to care for aging adults limits opportunities for earnings and career advancements.6 In addition, the average female caretaker spends an average of $7,000 per year on her care recipient.7 This is money that could be invested, where there is potential for growth.
- Mothers also experience a pay gap and time gap not experienced by fathers. Mothers of young children reported a 70% greater increase in time spent on household work (childcare, housework) compared to the increase reported by men, even when both parents work.8 This leaves less time for financial planning and management during critical earning years. Of those mothers who return to the workforce, their earnings fall following childbirth and don’t recover until the child is 9 to 10 years old.9
- Finally, the pay gap means that women have less to invest in retirement planning accounts, such as 401(k)s. Investing less from the start can mean missing out on a significant amount of potential investment earnings by the time women reach retirement age.
In the Mix: Diversifying Investments for Lifelong Confidence
For these reasons, women who are starting their journey towards financial well-being should consider diversifying their investment portfolio. Given that they experience a wide range of challenges and milestones unique to them, they may need a range of investment opportunities to meet their diverse needs.
In research commissioned by Jackson,10 we learned that women who have a mix of insurance and investment products feel more confident about their finances in later life. In particular, those who have defined benefit plans are more confident than those who don’t.
Those who are primarily dependent on insurance products, such as annuities,* displayed the highest levels of confidence in any group.
While women can easily feel the pressure of having to plan for more expenses with less earnings, annuities can relieve some of this pressure by providing protected lifetime income†:
- Annuities are tax-deferred investments,‡ meaning that you do not pay taxes on your earnings from annuities until you make withdrawals. This lets you keep more of your money in the market, allowing any earnings to accumulate over time.
- Annuities also offer the option to be passed on to your family.† A guaranteed death benefit ensures the loved ones you’ve taken time to care for can have the opportunity to add to your legacy.
Making sure you’ve diversified your portfolio appropriately for your personal situation can feel intimidating at first, but you don’t have to be alone in this journey. Our next article focuses on how building a relationship with the right financial advisor can bolster your confidence in planning for your future.
*What is an annuity?
Annuities are long-term, tax-deferred investments designed for retirement. Variable annuities involve risks and may lose value. Earnings are taxable as ordinary income when distributed and may be subject to a 10% additional tax if withdrawn before age 59 ½.
Annuities are not for everyone. And, it’s important to remember that these products are meant to be long-term investments designed for retirement, so there are restrictions in place to discourage you from withdrawing all of your money at once or taking withdrawals before age 59 ½. However, most annuities do allow for exceptions based on specific circumstances such as a terminal illness or other emergencies.
† Optional benefits are available for an extra charge in addition to the ongoing fees and expenses of the variable annuity and may be subject to conditions and limitations. Guarantees are backed by the claims paying ability of the issuing insurance company.
‡ Tax deferral offers no additional value if used to fund a qualified plan, such as a 401(k) or IRA, and may not be available if owned by a “non-natural person” such as a corporation or certain types of trusts.
The opinions and forecasts expressed are those of the author and individuals quoted and should not be construed as a recommendation or as complete.