If you hope to someday reduce the time you spend working or cease working altogether, then you will need to have sufficient savings to support yourself. The retirement outlook for many women today is looking increasingly bleak.
According to a new study, women not only lag far behind their male counterparts in terms of pension savings, but they also face longer life spans and higher costs for associated care needs. To put it simply, women need to save close to £200,000 more during their working lives in order to enjoy the same retirement income as men.
Here’s the lowdown.
Women’s retirement income shorfall: what does the research show?
According to the latest Women and Retirement Report from Scottish Widows, women need to save £185,000 more during their working lives to enjoy the same retirement income as men.
This ‘colossal gender pension’ gap, as described by Scottish Widows, is made up of a savings shortfall, the need to fund a longer retirement, and the need to cater for greater care needs as a result of living longer.
The study reveals that women currently in their 20s will only have saved around £250,000 by the time they retire, compared to men who will have saved close to £350,000, on average.
While a 25-year-old man today can expect to live to the age of 86, a 25-year-old woman can expect to live to the age of 89. So, with women living for an additional three years, the average woman will require £400,000 in her pension pot to achieve the same level of retirement income as a man with £350,000 saved up.
With longer lives also comes a greater need for care in old age. According to Scottish Widows, women can expect to spend £35,000 more than men on care in retirement.
What all this means is that women need an extra £185,000 to achieve the same retirement lifestyle as men. This equates to saving an extra £2,500 per year, or £210 every month, from their mid-20s until they retire.
How can the gap be closed?
According to Jackie Leiper, Managing Director of Workplace Savings at Scottish Widows, closing the gender pension gap requires closing structural societal inequalities that often leave women disadvantaged when it comes to retirement savings and income.
Among the recommendations that Scottish Widows makes to close the gap are:
- Reforming automatic enrolment in workplace pensions in order to increase default contributions
- Mandatory inclusion of pensions in divorce settlements
- Raising awareness of joint annuities and advocating for regulatory intervention in this area
What can women do to boost their retirement savings?
Worried about not saving enough during your working life to fund a comfortable retirement? There are things you can do to boost your savings.
1. Live within your means
To live within your means is to spend less money than you earn. It is to not allow yourself to splurge regularly on things that you don’t absolutely need or that only temporarily make you happy.
In other words, it means prioritising saving money instead of spending it. The less you spend, the more you can put towards your retirement. One way to make sure that you are living within your means is to create a budget and strictly follow it.
2. Boost your income
Aside from living within your means and cutting your spending, increasing your income is another way to save more for retirement.
One of the best ways to increase your income is by getting a side hustle. Side hustles come in many forms, and finding this type of work is easy. For example, you could drive for a ride-hailing service when things are slow at your primary job. Or you could walk dogs for people during your free time. There are many options out there.
Although a side job might not necessarily make you rich, it can allow you to earn more money to pad your nest egg.
3. Invest wisely
Many people, particularly those on low incomes, may find it difficult to save enough to live on during retirement unless they earn a good return on their savings.
Unfortunately, interest rates on savings have been low since the 2008 financial crisis. The recent Covid-19 pandemic has exacerbated the situation. That is why it is more important than ever to invest your savings into assets that, at the very least, provide a reasonable return.
Stocks are one viable option. Though investing in the stock market is inherently risky, stocks have historically outperformed traditional bank savings accounts in terms of long-term returns and could be a great way to build up a solid retirement income.
The post The shocking extra amount of money women need to save to reach same retirement income as men appeared first on The Motley Fool UK.
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