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Why women should save more for retirement

Woman holding cash

Sheryl Sandberg’s controversial memoir and handbook for career women, Lean In: Women, Work, and the Will to Lead, argues that women can and should act more aggressively and proactively in the workplace to achieve the positions they deserve. Her philosophy resonates with me in another sphere of women’s lives: Saving and investing money.

The savings website SaveUp recently released a study (PDF) supporting the notion that women need to "lean in" to save more toward long-term financial stability. SaveUp, which rewards users who regularly add to their savings, crunched aggregate savings and investment data from a sample of 20,000 of its users and reported that men carried an average balance nearly twice that of women. That held true for CDs, 401(k)s, IRAs and taxable investments. The only account in which women had higher balances than men was in very low-risk, low-return money-market accounts. "Men are planning for the future by simply saving more aggressively," a SaveUp statement opines.

I take issue with characterizing women as less aggressive savers. They may save less in dollars, but they also make less; Sandberg says it’s an estimated 77 cents for every dollar earned by men. It could be that women save a higher percentage of their income. Priya Haji, SaveUp’s founder and CEO, acknowledged that her study didn’t look at that. The SaveUp data also show that on average, its women users put a smaller proportion of their funds in low-risk, low-return certificates of deposit and money-market funds (17 percent) than did men (25 percent), though it didn’t examine how users allocated their funds within the other types of investments in the study.

Studies of women investors show that they tend to be more risk-averse than men. That’s not necessarily a bad thing. For example, a recent report by Rothstein-Kass, a financial consulting firm, demonstrated that female hedge-fund managers, though small in number, historically outperformed their male counterparts because of their tendency avoid risk and think more long-term.

But if aversion to risk means that women in general don’t branch out enough into higher-risk, potentially higher-return vehicles, that’s not a good thing. Statistically women live longer than men and need to make their money last.

We recommend the following long-term savings and investment strategies. Consider them a good starting point for both women and men:

  • Start early and save as much as possible. When we interviewed retirees with self-reported assets well above $1 million, they all said they started setting aside money for investment early in their working years, and kept up that behavior throughout their lives.
  • Diversify. Place your money in a variety of investment vehicles, representing different levels of risk. They might include, for instance, mutual funds; bond funds; individual stocks; and real estate. A survey of retirees we published in 2012 showed that even people without big incomes who diversified widely often accumulated more than those with higher incomes who didn’t diversify. Respondents with incomes under $85,000 who used seven or more investment types reported median savings of $368,000; those with incomes of $125,000 to $199,999 and money in three or fewer places had $315,000.
  • Live below your means. Yes, that may mean buying a used car when you’d prefer a new one, and foregoing the latest electronic gizmo. But if that behavior gives you what you’ll need to live out your days comfortably, you’ll thank yourself in the long run.

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