Helping female executives and businesswomen like myself to navigate their professional and financial worlds in a holistic manner is my quest in life. A key part of this process involves working closely with clients to ensure a comfortable, stress-free retirement.
Over the years I’ve come to realize that successful retirement planning for female executives starts by having challenging conversations. Often, as women with demanding careers and extensive personal responsibilities, we are easily blown off course when it comes to planning for retirement or building wealth, simply because we lack the time to crystalize our goals and envisage an ideal future.
Not only is this deferred approach harmful to any financial journey, but it could have profound repercussions later in life.
Why Is Planning for Retirement So Important?
Data from the likes of the Employment Benefit Research Institute and the National Retirement Risk Index tells us that around 50% of Americans will battle to retire comfortably. While there are multiple reasons behind this chilling statistic, a lack of adequate and effective retirement planning has a role to play.
When you narrow this down to women alone, the situation looks even more dire. The reasons for this are manifold, but they have a lot to do with salary discrepancies between men and women, and how women negotiate their financial worth from an early age.
Linda Babcock, the respected economist, academic and author of Women Don’t Ask: Negotiation and the Gender Divide, explains it this way: “Women are entering the same position as men, typically, with a slightly lower salary. Now, take that over time, and let’s say that the men and the women get percent raises over time, well that distance in their salary is going to be increasing. So not negotiating one salary can lead to a loss of over $2 million over the course of one’s career.”
These enormous economic losses for women become extremely visible when it comes to retirement, as a Bank of America Merrill Lynch report noted in 2019 when it confirmed that women generally enter retirement with $70,000 less saved than men.
While there is a growing appreciation that women often save less due to generally lower salaries, I also believe you cannot discount the financial and time impact of the many roles that women play in their lives, and the additional social and monetary responsibilities shouldered by women across the wealth spectrum.
This makes it particularly important for all women, but particularly female executives and businesswomen who intend to maintain a high standard of living in retirement, to pay careful attention to the four derailers I highlight in my book, Corner Office Choices.
How to Avoid the Four Key Derailers
In my experience, it’s always advisable to keep these points in mind when formulating a retirement plan:
- Focus on Goal Clarity: Start the process of planning for retirement by being clear in your own mind about how, when and where you intend to retire. Take time to consider your passions and pursuits and factor those into your retirement planning. Be honest about the choices you may need to make and which financial outlays are non-negotiable.
- Take Time to Manage Cash Flow: While money is flowing in, many female executives fall into the trap of not monitoring their spending or budgeting. This often means that instantaneous gratification takes precedence over long-term savings goals, including retirement. When you understand where your money is going, you can better allocate a healthy amount to securing your future.
- Strategically Manage Business and Career: When I start working with a new client, we spend a lot of time discussing personal and financial wellbeing. After all, living your ideal life starts with self-fulfillment, having a meaningful career and living the life you desire. This also applies to how you manage retirement.
- Create a Comprehensive, Goal-Orientated Retirement Plan: There is tremendous value in having a written plan of action to help achieve meaningful goals. When it comes to retirement planning for female executives, this plan should lead you towards your desired outcome by incorporating targets for saving, setting deadlines and outlining tactical objectives.
When you understand where your money is going, you can better allocate a healthy amount to securing your future.
Retirement Planning Solutions for Female Executives
When it comes to retirement planning, many people turn to the tried-and-trusted ‘4% rule’ to determine how much you’ll need to save to ensure your ideal retirement income.
The 4% rule calculates what annual retirement income you can expect (over a traditional 30-year retirement) based on the value of your total retirement portfolio if you withdraw 4% of the total value in year one of retirement.
For instance, if you have $2 million in your retirement pot you could expect to take out 4% (or $80 000) in the first year of retirement. But from year two onwards, the amount you withdraw is impacted by inflation, as well as market cycles and downturns, so that annual 4% is by no means set in stone.
Another way to ensure you are saving enough for a comfortable retirement is to save at least 15% of your pre-tax salary each year.
However, based on the retirement you envisage you may need to increase your savings in line with your personal goals.
If you plan to spend retirement travelling, enjoying pricey hobbies like sailing, horse riding or golf, or enjoying unfettered access to the good things in life, then tucking more away might be a good idea. A good financial advisor will help you crunch the numbers.
Your advisor will also help you navigate the dizzying array of retirement plans available to you. For instance:
- 401(k): This is offered through employers who match a portion of your contributions. This option is subject to taxes on withdrawal or penalties if you take out funds before age 59-and-a-half.
- Solo 401(k): A good choice for self-employed business women who don’t have any employees.
- 403(b): A similar option to the 401(k), but this one is designed for non-profit or tax-exempt organizations.
- Roth IRA: An individual retirement account like the Roth IRA offers certain tax benefits, such as tax-free withdrawals on retirement, but limits the amount you can contribute each year.
Insurance is also a solution to consider. A Health Savings Account (HSA) can cover qualifying medical expenses that could make a dent in your retirement savings later in life. From a wealth planning perspective, there are also tax benefits associated with having a HSA.
Find a Financial Partner
If, like other busy female executives and businesswomen, you barely find yourself with the time to think, let alone plan for a retirement that is both rewarding and financially secure, then reaching out to a professional financial advisor is a savvy move.
My own wealth journey has involved having some pretty honest conversations with myself about how I manage my career, grow my business and adapt my lifestyle to ensure financial peace of mind.
I understand the value in having these conversations with a female financial advisor who understands the challenges unique to successful women executives. If you are uncertain about your retirement planning or need financial or investment advice, please get in touch.
