Parents – At 34, Your Daughters Are Already Behind!

Parents, you undoubtedly want the best for your children.

But did you know that by age 34, your daughter may already be losing the race for financial security, so far behind she may never catch up?

The sobering reality

By age 34, young women are already behind, having accumulated retirement savings worth only 64% of that accumulated by young men. How does that translate into dollars?  If young male workers save $5,000 per year starting at age 25, then by age 34, they will have accumulated $50,000.  Young women, in contrast, only have $32,200 saved by that same age.

Even if our young 35 year-old workers never save another dime, the gap will continue to grow.  That $50,000 stash will grow to over $304,000 for the men by age 65, but only $196,000 for the women (assuming a 6% annual growth rate).

Their lower savings balances can make it hard for older women to leave the workforce when they are ready to retire, and make it more likely they will be unable to secure the retirement income flow they need to maintain a comfortable lifestyle.

In reality, men will get even further ahead because they save more.  While young men in the 25-34 age group are saving on average 7.6% of salary, women are only contributing 6.1%.

Why women are already behind

There are several reasons women fall behind at an early age.

  • Women earn lower salaries (women make on average about 80¢ for every dollar earned by men).
  • They save a lower percentage of their salary than men.
  • More young women say their income is “too low” to permit saving.
  • More women say “not knowing what their options are” prevents them from saving.
  • More young women than men say a “good lifestyle” is more important than saving for retirement.

What you can do

Help your daughters (and nieces and granddaughters) become savvy investors by teaching them good financial management skills, including how to budget, save and invest. Have them manage their own bank accounts at a young age, manage a budget, and save toward long-term goals. Make sure they understand the trade-off between current consumption and future investment, and how long it will take them to pay off any credit card or school debt.

Encourage them to fund Roth IRAs as soon as they have working income, even from a summer job.  If you can afford to, tell them you’ll contribute $1 for each dollar they save on their own.

If they are borrowing money for college, do a realistic calculation of how long it will take them to pay it off at their expected salary level.

When they get a “real” job, have them sign up for the 401(k) or other retirement plan as soon as possible and set their savings on “autopilot” so their employer automatically increases their contribution rate each year.

Explain that women will be responsible for their own financial well-being at most stages of their lives.  Relying on a parent, spouse or friend to make financial decisions for you is like asking someone else to pick out your clothes and dress you once you’re an adult … even if the clothes fit, they’re probably not your style.

Remember that we are always available to talk and meet with our clients’ children to provide guidance on setting up a Roth IRA, enrolling in a 401(k) plan at work, selecting other employee benefits from the workplace menu, buying a first car or house, or other financial matters!

 

 

About Mari Adam

Mari Adam, Certified Financial Planner™ and President of Adam Financial Associates Inc, has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!

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