Investment Strategy

Why women should save 40% more than men

Many men and women love poking fun at each others’ spending habits. Husbands and boyfriends can’t understand the need for expensive handbags and shoes for every occasion. Wives and girlfriends roll their eyes when they hear about the latest gadget or fancy car that their man is eyeing. Whatever the truth of the stereotypes one thing is clear. Human females live for five years longer than males, on average. This means they have longer retirements. For that simple reason alone women should save and invest much more money than men.

It’s a curious fact that women have longer life expectancy that men in practically every country in the world. Whether it’s a rich country like Switzerland or a dirt poor one like Haiti, women can expect to be pushing up the daisies several years after men born at the same time.

On average across the world, according to the United Nations Department of Economic and Social Affairs (UN DESA), women outlive men by five years. Girls born in 2012 were expected to live for 73.5 years, against 68.5 years for boys.

The gap varies by country, but is consistently in favour of the female of the species. For example, ladies from Switzerland – a rich country – live four years longer than the gents. Ladies in India – a poor country – live three years longer than their men folk.

We can speculate about why this is the case. Perhaps men have less healthy lifestyles? Or perhaps women have a genetic advantage? But in any case it doesn’t really matter for our purposes. It just is what it is.

All we need to know is that women consistently live longer all around the world. Most people would see that as a good thing for women, including me. But there’s a flip side. For that reason alone women will need to have more money when they retire if they want to live comfortably in their later years.

These days, perhaps more than at any time in history, women have more financial independence than ever before. Over the past half century or so women have flooded into the workforce in developed countries.

A great many women are engaged in high flying and highly paid jobs, meaning they have serious money to manage. More and more are running huge corporations or sitting on their boards of directors. And the trend continues in developing countries. (When I worked for a big global investment bank there were just as many women as men at all levels of our team.)

Yet it’s curious that few women seem to show much interest in investing. I’ve spoken at many investment conferences for private investors, in several countries, and there is one thing that’s consistent to all of them. The vast majority of people that attend are men. Typically around 95%, or even more.

I don’t know why this is. Whether it’s seen as too boring by women. Or they have higher priorities like the immediate demands of family. Or it’s too much of a “boys’ club”. Or some other reason.

But I also find that women have little interest in the subject at private gatherings such as cocktail parties or dinners. It’s almost always the men that want to talk finance. (Perhaps they like to brag about their big wins.)

Whatever the reasons it’s a great pity. We could really do with more women being engaged in the financial world. It also means there must be huge numbers of women with substantial financial assets that are leaving themselves at the mercy of bankers and brokers.

At the very least, anyone with meaningful savings and investments should know how to avoid being ripped off by the financial industry. Finance professionals routinely smother everything in sophisticated sounding sales jargon which leaves the uninitiated exposed to unsuitable and overpriced products and services. That can be a real killer over time.

Even if you don’t select every single investment yourself, you should still have enough knowledge to set the strategy, choose the brokers and negotiate the fees. We need the investment industry, but we also need to know how to engage them on our own terms.

The bottom line is that women live longer, so they need more money to live on over their lives. But just how much more do women need put away? I’ve estimated it at around 40%.

Obviously that’s a huge difference. It means that for every US$100,000 that a man saves over his working life a woman in the same position would have to save US$140,000, and invest it well.

So how do I get to this 40% figure? Why do women need to save so much more than equivalent men to get to the same level of financial security in retirement?

Well it’s pretty simple. Let’s use Germany as an example.

Germany is a rich country. Average German life expectancy sits about two years above the USA but two years below Switzerland. It’s pretty representative of a “typical” developed country in this regard (and probably also of the life expectancies of well off people in poorer countries).

In 2012, again according to UN DESA, average German life expectancy at birth was 79.9 years. That breaks down as 77.2 years for men and 82.4 years for women. This means women are expected to live for 5.2 years longer, which again is typical. For the record, the gender gap is almost the same in the USA and Switzerland, at around five years.

Now let’s say a German boy born today goes on to retire aged 65. On average he will live for another 12.2 years after retirement. A similar girl that retires at the same age will have to support herself for 17.4 years. In other words she’ll need her funds to last for 43% more time.

It’s as simple as that. Since a woman’s time in retirement is likely to be around 40% longer than a man’s she will need around 40% more retirement funds to see her through.

Many people – men and women alike – are complacent about retirement saving. Often they start too late. Or even worse they don’t start at all, believing the government will look after them when the time comes. But almost all developed countries – and some developing ones – have rapidly ageing populations, and already high levels of government debt.

This means governments will struggle to pay for pensions and old age health care demands in the future. The money just won’t be there. Having access to private savings and investments will be more important than ever, whether held in a pension fund or not. (Pension funds have tax advantages, but savings outside pension funds usually have more flexibility. Ideally you should have both.)

Everyone, men and women alike, should make sure they save what they can as early as possible. And then take care that the money is invested in a range of assets so that it doesn’t lose value over time, after inflation and taxes. As a reminder, our Wealth Tree infographic, shows 50 different ways that you could invest.

For women, who have the good fortune to live longer than men, it’s even more important to put away substantial money for retirement.

If you’re a man reading this then I encourage you to talk to the women you know and love about this, and see if they know what’s at stake. Feel free to forward this article to them, whether they’re friends, sisters, mothers, wives, girlfriends, nieces, cousins, or work colleagues.

If you’re a woman then don’t delay in ensuring you have financial security in your later years. Start saving and investing more today. You may have a little less to spend now, but I’m sure you’ll be glad of it in the long run.

Stay tuned OfWealthers,

Rob Marstrand

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Rob is the founder of OfWealth, a service that aims to explain to private investors, in simple terms, how to maximise their investment success in world markets. Before that he spent 15 years working for investment bank UBS, the world’s largest wealth manager and stock trader with headquarters in Switzerland. During that time he was based in London, Zurich and Hong Kong and worked in many countries, especially throughout Asia. After that he was Chief Investment Strategist for the Bonner & Partners Family Office for four years, a project set up by Agora founder Bill Bonner that focuses on successful inter-generational wealth transfer and long term investment. Rob has lived in Buenos Aires, Argentina for the past eight years, which is the perfect place to learn about financial crises.