With August being Women’s Month, it gives us a good opportunity to explore some of the key considerations women should make when preparing a financial plan and taking charge of their financial future.
Before we delve into those factors to consider, it’s important to have a view of the findings on surveys conducted on how women are managing their financial affairs.
In a recent nationwide survey done in the US by Fidelity Investments , the study showed that 67% of women surveyed are now investing outside of retirement savings vehicles, up from 44% in 2018. While on the surface, that seems very encouraging, however, the alarming statistic in that same study was that only 35% of woman feel confident that their non-retirement savings are invested appropriately, while only 14% of women say their knowledge of saving and investing is up to standard. The net result is that 34% of women in the US say their financial situation is giving them sleepless nights as their current financial planning will not meet their long-term goals.
Closer to home, in South Africa, Sanlam recently conducted a similar survey and the results showed that 86.4% of South African women said that their financial planning was the main reason for their sleepless nights. Of those surveyed, only 22% of women have a financial planner guiding them through their financial plan. In the 2022 Retirement Reality Report , a study was done on 15,4 million economically active South Africans; the results showed that 49% of women (compared to 44% of men) currently do not have a financial plan. Of those who do have a financial plan, 27% of women (compared to 19% of men) said their plan is so vague that they do not feel comfortable that their savings objectives will be met. The conclusion of this report highlights that the retirement readiness gap between the sexes not only persists but is also widening.
While the core principles of saving and investing for one’s retirement and other long-term goals remain the same for both men and women, the reality is that there are factors that women must take into account when planning for their futures that men do may not necessarily need to consider. Let’s consider a few factors that women may take into account.
In South Africa, on average, women are living longer than men. The latest statistical release from Stats SA shows that the average life expectancy for men in South Africa is 64, while the number for women is 71. That means, on average, women are living 7 years longer than men. This implies that women may have to save more during their working life to sustain them during a longer retirement phase. What makes things more complicated is the sobering fact that according to the World Economic Forum’s (WEF) Global Gender Gap Report, in South Africa, women earned between 23% and 35% less than men doing the same job in 2022.
To effectively plan for your retirement, it is proposed that you spend as much time in the investment market as you can. Start investing as early as possible, as much as possible, and benefit from the impact of compounded returns. Saving for retirement should be in tax-efficient savings vehicles. One of the advantages of investing in a retirement fund is the tax benefits afforded to you by the government. Retirement fund members are allowed tax-deductible contributions to their retirement fund of up to 27.5% of the higher of their taxable income or remuneration, capped at R350 000 per tax year. These deductible contributions reduce an individual’s taxable income during the year of assessment and thereby reduce their overall tax liability.
When starting a family, women’s retirement savings are also often affected by multiple career interruptions due to maternity leave. While employer funds should allow membership in the fund to continue during maternity leave period, some do not, which significantly contributes to a retirement gap.
Single motherhood is a daunting task. The General Household Survey published by StatsSA in May 2021 reports that most children lived only with their mothers (42,0%) while a much smaller percentage (4,0%) of children lived only with their fathers. Apart from raising your children and running your household, you have to also plan for retirement and or, your children livelihood in the event of your untimely death. Breaks in employment service often provide an opportunity for single mothers to withdraw from the employer’s fund. While tempting, it’s important to remember that one of the main reasons for not maintaining your standard of living after retirement is due to cashing in on your retirement fund when changing jobs, so preserve as much as you can.
Life is unpredictable, and a prudent approach would be to start an emergency fund as a financial buffer in the case of emergency. A great vehicle for this is a unit trust investment as it allows for quick accessibility when an emergency does arise. A good rule of thumb is to aim to have at least 3 months of expenses saved in an emergency fund to cover any unforeseen family expenses.
Taking charge of your financial future would require the guidance from a qualified and licensed financial advisor who can facilitate those difficult conversations and advise you on plan that secures your financial freedom. Remember, life is not a race but a journey with many unexpected turns. The earlier you plan for your journey, the more manageable it may be to navigate.