Women should plan to live for 100 years, financially speaking

Happy centennial (and then some).
Happy centennial (and then some).
Image: Reuters/Lucas Jackson
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Two out of three women in the US want to live to 100, but 60% of them worry that they’ll run out of money if they live that long. (Maybe that’s why not all of them find an exceptionally advanced age appealing.)

The cost of funding the typical retirement is $738,000, but only 9% of American women have $300,000 or more saved, according to Merrill Lynch and Age Wave. The bank and consultancy polled 3,700 adults and found that women have a harder time building wealth. One in four adult women, and almost a third of women between the ages of 30 and 44, say they haven’t planned financially for their future.

According to the report, women are as confident as men in most financial tasks, with one crucial exception: investing.

Only a little over half of the women surveyed reported feeling confident about managing their own investments. Seventy percent said they felt the financial industry catered to men, by focusing more on their typical salaries, life paths, life spans, family roles, and general preferences. Women are more likely than men to take career breaks to raise children or care for elderly family, for example.

Confidence does, however, grow with age. Millennial women are less likely to feel confident in investing than their older female counterparts. (While it is possible there is a generational difference in investing habits, it’s also possible that millennials are less confident because they have less capital and experience than older generations.)

According to the Merrill Lynch/Age Wave survey, 41% of women regret not investing more.

An analysis from NerdWallet found that avoiding the stock market can be costly, especially for young people. The financial information site considered three scenarios: fully investing extra savings in stocks, depositing the money in a standard savings account, or holding funds in cash.

If a 25-year-old who earns $40,456—the median for young Americans, according to official statistics—invested 15% of her annual income each year in equities, she could retire with $4.6 million in savings at age 65. (The analysis assumes stock market conditions over the next 40 years will be similar to those over the past 40 years. It does not adjust for inflation or take into account investment fees.)

Depositing the same amount in a savings account, generates a return of roughly $1.3 million over the same period. Keeping savings in cash generates no extra returns because, well, a dollar bill is always worth just a dollar.

While past results don’t guarantee future returns, and the stock market can be risky, the example is illustrative: For young people, investing money almost always generates higher returns than the alternatives when it comes time for retirment. So take advantage of company-sponsored plans and be mindful of the fees charged by funds, which can add up over long periods of time.