Many studies examine the effect of financial risk taking, money attitudes (such as budgeting, saving, and investing), income levels, age. and gender on willingness to invest in shares. Research shows that in most western nations, not enough women invest in shares for dividend income and capital growth.
Yet it is important for everyone, but especially women, to take an objective look at their finances, manage their savings and consider investing in the stock market regularly.
Do not run out of money in retirement
As people near retirement, their biggest worry centres on money, or rather lack of it. Surveys indicate that many people over the age of 55 have low levels of financial wealth and little in assets other than their homes.Â
When compared with men, women are less likely to invest their savings and so they miss out on significant wealth, especially in retirement. Unfortunately, pensions industry for the most part remains an ‘Old Boys’ Club’. Statistics show that many women have cash ISAs or bank savings accounts. In other words cash is queen.
But when it comes to the stock market, female investment levels tend to fall off a cliff. However, savings in cash ISAs that do not earn a meaningful annual return would not help ensure a financially safe retirement.
Therefore the first step is to learn more about how much your retirement may cost. There are various educational programmes available through employers or the government that aim to introduce the public to different retirement planning products.
One suggestion is that you’ll need between half and two-thirds of the salary you earned before retirement to maintain your lifestyle. A safe range would be between £25,000 and £30,000 a year.
How will you pay for retirement?
Let us assume that you’ll need £30,000 in retirement. Let us also leave your potential State Pension or any other private pension income aside for now. At present, the full basic State Pension is £125.95 per week. You’ll only get a proportion of the State Pension if you have between 10 and 35 qualifying years.Â
One way to calculate how much in savings you’d need is to multiply £30,000 by 25. The result is £750,000. This calculation is known as the multiply-by-25 rule or the 4% rule.
In other words, if you’d like to finance your retirement with your savings, multiply the amount you’d need per year by 25.
How can you save £750,000 by age 65?
The last step is to appreciate how important it is to start saving, ideally early on.
My Motley Fool colleagues regularly cover funds and stocks to consider adding to a diversified retirement portfolio. They point out that the stock market returns about 7% to 9% annually on average. You can also find financial calculators online to see how much your savings would grow over time.
Let us assume that you’re now 30 years old with only £1,000 in savings and that you plan to retire at age 65.
You decide to invest that £1,000 in a fund now and make an additional £4,000 of contributions annually at the start of the year. You have 35 years to invest. The annual return is 8%, compounded once a year. At the end of 35 years, the total amount saved becomes £759,194.
Saving £4,000 a year would mean being able to put aside about £333 a month or £11 a day. Might you just be wondering if you should skip that next impulse purchase?