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You probably already know…the Economist recently wrote an article about the large retirement pension gap between men and women. There is a strong and pernicious gender pay gap (ranging from $.40 for women vs. $1.00 for men in Angola to $.88 for women vs. $1.00 for men in Rwanda according to the World Economic Forum). I was proud to see that the UAE, where I live, is ranked 8 out 135 for wage equality. Regarding Europe, Mercer recently released a report showing the size of women’s pensions is 40% less than their male counterparts.

But let’s look at how all these differences combined can affect women over the long run. And then let’s talk about some small but important things that women can do to put the odds in their favor.

Below is a hypothetical John and Sarah (both are single) where I quantified these inequalities to see the real world effects.

Those were the main assumptions, but what does that translate to when it comes to retirement?

A few things to note from the above table:

  • Men will likely retire with a much larger pot of money than women
  • Women will have to endure a standard of living that is 45% less ($27,866/$61,724) than men upon retirement if they want to make their money last
  • After taking into account inflation, women will have to make due on 16% of their current income ($13,957 vs. $85,000 current income)
  • Sara will be able to maintain her pre-retirement standard of living for only 4 years in retirement

To give a visual representation of what this could look like with the same assumptions...

Some of the factors driving these inequalities are intuitive (i.e. women are not in as high paying jobs, they take more time off to care for elderly parents and children). This is a big problem for women specifically and society overall. Unless some meaningful changes occur, we are likely to see an increase in poverty rates and financial hardship for women in their later years.

What Can Be Done…Practically?

All is not lost and there are some very doable action steps women can take to make a significant difference in their future. The following ideas are limited to real steps that individuals and families can make (Institutions aren’t off the hook; they are simply outside the scope of this article).

Increase Your Human Capital

Your human capital is the total value of all your future earnings (i.e. you work for 40 years and earn x $50,000 a year, thus your human capital is $2,000,000). When you are young most of your "wealth" is composed of your human capital since you are starting your career and usually do not have much in the way of financial assets. The two main ways to increase your human capital is through education and work experience.

A few ideas to make this practical

  • Position yourself in your job so that every three years you can ask your boss for a raise and have a solid rationale for your request
  • If you are in your early career years, consider the professionals in your field you desire to emulate, go on LinkedIn, and review their educational background. Give thought to whether getting further education (i.e. Master’s or Ph.D.) from a similar institution can be worth the time and cost. Sometimes professional certifications (such as the CA/CPA for accounting or CFA/CFP for finance) can take you less time, be cheaper, and still have a high return on your investment.

Be Financially Strong

Let’s face it, life is expensive. Whether it is health care, housing, traveling, or simply trying to eat healthily, prices keep going up. But what are some simple actions you could take that can make a big difference?

Here are just a few...

  • Save 15% of your salary for retirement. If you feel you can’t afford that much, then try increasing whatever you are saving by 5%.
  • Make a personal commitment that you will put aside 25% of all future bonuses and raises for your savings goals.
  • See what large ticket items you can buy second hand, and put the difference aside as savings.
  • Try to own your home in full with no debt by the time you retire so you have minimal housing costs in retirement.

Be a Money Guru

No one cares about your well being and financial health more than you. So you have to take personal ownership for learning and understanding the basics of managing your money.

For starters…

  • Make a budget (aka “money plan”). We plan a lot of our life, but often times leave our financial welfare to chance. Toshl and Wally are good budgets apps and you can also check out this free budget calculator.
  • Pay off your credit card every month in full. The interest rates on credit cards are notoriously high.
  • Whenever a financial salesman tries to sell you something, put on your discerning ninja mind and ask good questions.

Super Sara

Let’s bring Sara back and see what her future could look like with a few small, but important, changes to her lifestyle.

Sara decides to:

  1. Pay off her house by the time she retires so she will have a much lower cost of living in retirement
  2. Work for a few more years longer until she reaches 70
  3. Save 15% of her salary
  4. Educate herself on the basics of investing and grow comfortable with a more aggressive investment portfolio so she can have a higher expected investment growth.
  5. Annually she will increase her monthly savings by 5%.

Let’s see how that changes her future...

Visually that looks like…

You can see that making a few changes can make a world of difference. You can download our free Retirement Financial Planner spreadsheet, input your details, and get an idea of where you stand.

What about the men?

Here are some ideas for all the guys out there...

  • Carry the Load Equally at Home – women tend to do most of the housework and child-rearing. Men need to “man up” and change those nappies, make some food, and “own”, with your partner, the well-being of the home.
  • Seek to Understand – men, you need to empathize and seek to understand the experiences of your female friends and colleagues. Be sensitive to the comments you make and be aware that they likely experience the work environment in very different ways than you do.
  • Fathers Empower Your Girls – Be careful of subtle (and subversive) gender stereotypes. As a father of a two-year-old girl, I want my daughter to believe and know from me that she is just as capable and able to accomplish her dreams as boys are. While rather inconsequential, the other day we were at Marks & Spencer’s trying to find some cool panties as an incentive get her to “potty train”. In the girl’s section, they had white panties and some princess panties, but in the boy’s section, they had cars, superheroes, and lots of different colors. So, I got her the white panties from the girl’s section (to have something basic) and my daughter picked out the Marvel Hulk and Spiderman underwear from the boy’s section. I want my daughter to know superheroes are for everyone!

I don’t have any magic solutions to the entrenched and vast gender inequality in society, but I do want to be part of the solution.

If you found this article insightful, inspiring, or encouraging, please share it with your friends and family.

Full Disclosure: Nothing in this article should ever be considered to be advice, research or an invitation to buy or sell any securities. The information is purely for educational purposes. Please consult your financial professional for investment guidance suited to your situation.


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