Both women and men seemingly have the same opportunities to save, invest and take out a loan. They can perform the same investments and are subject to the same rules. However, their circumstances and choices can be very different. This gap is particularly conspicuous in regard to preparing for retirement. Since women have a higher life expectancy than men, they will likely have to live off their pensions for longer. And yet, women usually earn less than men and participate in the workforce in a less continuous manner, usually due to the need to take care of children. As a result, they tend to accumulate less in their pension savings. Nonetheless, this does not mean women are destined to struggle economically in their later years. There are several strategies women can implement at a young age in order to increase their chances to retire securely, and even with economic well-being. Below are seven such strategies:
Strategy 1: Start saving as soon as possible
Small sums saved up at a young age accumulate into a larger sum at an older age. For example: Consider two women, who save 10,000 NIS per year until they retire at 65 (the age that will soon be set as the retirement age for women). The first began to save at age 20 and saved for 45 years, and the second began to save at age 35 and saved for 30 years. Assuming a yearly appreciation of 8%, which is considered to be the average appreciation when investing in capital market shares, the first will accumulate some 3,865,000 NIS and the second will accumulate some 1,133,000 NIS. This means the first will have a pension three times that of the second.
Strategy 2: Don’t be afraid of the stock market
According to studies, women are deterred from investing at a risk and therefore sometimes invest more conservatively. By shying away from stocks, which can provide a greater return on investment over time, they risk accumulating too low savings prior to retirement.
Strategy 3: Consult with as many appropriate people as possible
Find appropriate people to consult with regarding economic issues, listen to ideas, explanations and examples. These will enrich your knowledge, increase your understanding and provide you with ideas for appropriate investment for you of the funds saved for the pension. Compare the various advice you receive to ensure that the decision is optimal for you and not influenced by interests or opinions that are wrong for you.
Strategy 4: Don’t draw on the compensation component
Though we may sometimes want to withdraw the compensation component to provide them to our children or for other purposes, it is best to avoid doing so as long as possible. Withdrawing the compensation component will significantly decrease your pension funds.
Strategy 5: Consider increasing the distributions to the pension fund
You can increase the distributions to the pension fund from your salary by 1%. Such an increase represents a relatively small difference in your monthly income, but by retirement, this additional percent will accumulate into a large sum which will make a significant change to your pension sum.
Strategy 6: Consult again before retirement
Prior to retiring it is important to consult in a focused manner in preparation for it, in order to optimally plan the pension products and conditions upon retirement, in a way that takes into account your needs, your family’s needs, and the taxation aspects of the pension.
Strategy 7: Acquire knowledge constantly (most important)
Studies show that women are less interested in pension and finances, and sometimes avoid dealing with these issues. This status may prevent them from making optimal decisions regarding their pension savings, and leave them dependent on the decisions of others. Start acquiring knowledge, that will accumulate with time, and will enable you to make the best economic decisions about saving for your retirement.
Li-Noy Green is the field head and lecturer in the first-degree programs in the Israel Academic College in Ramat Gan. Li-Noy is Field Head of behavioral economics, and studies issues relating to socio-cultural forces that influence how we make our personal economic decisions.
The content presented in this article is not investment consultancy and is not meant to replace personal financial consultation, including retirement and/or investment consultation which takes into account the special data and needs of every woman. Anyone who makes use of these contents does so on her own cognizance and responsibility.