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March 8th is International Women's Day! From saving for retirement to escaping the "pink tax," here are our top tips for how women can grow their wealth in an unequal society.

For International Women’s Day, we’re taking a look at how women can grow their wealth, protect their assets, and be financially independent. But before we do that, let’s acknowledge the large elephant in the room: it may be 2021, but women are still operating in an unequal system.

According to Statistics Canada, Canadian women continue to earn $0.87 for every dollar earned by men, and that number is even worse for Indigenous, racialized, newcomer, and disabled women. Women with the same experience, socio-economic, and demographic background earn approximately $7,200 less annually than their male counterparts. Also, only 25% of vice-president positions and 15% of CEO positions are held by females, and out of the top 500 companies and organizations in Canada, 109 do not have any women on their board of directors.

So, we get it: it’s hard to get ahead when the system is stacked against you. We’re not going to ignore that reality. Instead, here are some practical tips on how women can grow their wealth—even in an unequal society.

Get Smart About Your Personal Finance

When it comes to personal finance, many women don’t feel confident about holding the purse strings. According to Statistics Canada data, women were less likely than men to consider themselves to be “financially knowledgeable” (31.4% versus 43.2%), and less likely to state that they “know enough about investments to choose the right ones that are suitable for their circumstances.”

But c’mon: we all know (and research supports) that women are just as capable as men at managing their finances. And letting someone else call the financial shots means that you’re under someone else’s control.

“You can’t do better unless you know better, so focusing on increasing your financial literacy is one of the best investments you can make!” says Bridget Casey, financial expert and founder of the financial literacy website Money After Graduation. “It takes time to master your money, but taking a few small steps every year to learn about specific topics is an easy way to break it down into a more manageable project. For example, you can make 2021 the year of budgeting and saving, then tackle investing in 2022.”

If personal finance is a mystery to you, start small: read a few basic books on investing, learn the simple art of budgeting, and read about how to start investing in Canada. Or sign up for the Young and Thrifty weekly newsletter! Remember: knowledge is power.

Aim for 18% Savings of Your Income for Retirement

Traditional advice largely recommends saving 10% of your income for retirement, but that gender-neutral approach is not aligned to most women’s realities. It doesn’t account for people (predominantly women) who work part-time or experience career disruptions (e.g. for pregnancy leave or caregiving responsibilities), which reduces their capacity to save for retirement. It can also mean qualifying for lower pension benefits. Combined with the gender wage gap, women have a higher risk of living in poverty in their senior years. Because of this (totally unfair) reality, women need to save more for retirement.

How much more though? Instead of saving 10%, some experts recommend that women save 18% of their income to make up for this “gender retirement gap.” So if you earn $50,000 annually, that would amount to $9,000.

“Saving for retirement can feel daunting, particularly during any years you take time away from the workforce for caregiving, or have additional large bills like daycare,” says Casey. “Expect that your income and expenses will fluctuate at different stages in your life, and plan to contribute more to your retirement investments in the years you can afford to do so. Make a dedicated effort to catch up on savings whenever you receive a bonus at work or an income tax refund.”

Take Advantage of TFSAs and RRSPs

The best way to grow your retirement savings is to open a Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA). An RRSP is a tax-sheltered investment vehicle. You receive a tax deduction when you contribute, and those contributions grow on a tax-deferred basis until it’s time to withdraw the money in retirement. With a TFSA, you don’t receive a tax deduction when you contribute, but the contributions grow tax-free, and your withdrawals are also tax-free. RRSPs and TFSAs are important tax shelters that allow your investments to compound for decades as you build up your retirement nest egg.

“For most people, the TFSA is a better choice than the RRSP, and in the long run, tax-free always beats tax-deferred,” says Casey. “Most people should think of TFSA as a must-have and then use the RRSP strategically depending on their income.”

Ideally, you should max out both your RRSP and TFSA, but not everyone can afford to do so. You may have to choose between RRSPs or TFSAs—and that’s okay. Also, there are times when you may want to choose one over the other based on your income tax bracket. Contributing to an RRSP is best for those with higher incomes, starting at, say, $60,000 per year. The goal is to contribute when you’re in a higher marginal tax bracket than you’ll be in when you withdraw the money in retirement.

Contributing to a TFSA is best for low-income earners and those who are just starting out in their careers. TFSA withdrawals are tax-free, and in retirement, those withdrawals won’t impact your eligibility for means-tested government benefits like OAS and GIS.

Entry-level employees should start out by contributing to their TFSA and save their RRSP contribution room for later in their career when they’re earning a higher salary.

Sack Your Financial Advisor and Do It Yourself

Historically, the financial sector has largely catered to a male clientele that doesn’t always consider (or care about!) the female experience. In fact, one study found that 80% of Canadian women fire their advisors within a year of their spouse’s death (LOL!). It’s not surprising, given that women report feeling stereotyped, belittled, patronized, and not taken seriously by financial advisors.

Indeed, when it comes to financial advice, women are still not getting the service they want or need. Luckily, you can easily change that: do it yourself! It’s never been easier for women to start investing, even with a small amount of money and zero investing experience.

If you’re new to investing, you can simply sign up for a robo advisor—a digital platform that can design a personalized low-cost investment portfolio tailored to your risk tolerance and financial goals. All you have to do is answer an online questionnaire and the computer algorithms will do the work of managing your funds—at a fraction of the price of a financial advisor (and minus the “mansplaining”). Some of the best robo advisors even offer access to human experts providing financial advice, so you can always get help if you need it.

“It can be intimidating to speak up, but asking questions and asking for help when you need it might have the biggest ROI of all,” says Casey. “You shouldn’t feel ashamed or embarrassed for what you don’t know. When it comes to your money, knowing what’s going on is the only way to ensure you’re getting the results you want and deserve, so ask and ask again!”

As you learn how to buy stocks, you can even choose to create your own investment portfolio using an online brokerage and cut costs to the bare bones.

Don’t Play It Safe: Take More Risk With Your Investments 

When it comes to investing, some research suggests that women tend to be more conservative, stashing their savings into more conservative, guaranteed investment return products, such as GICs and high-interest savings accounts. While it’s important to have some money in those products, it can also hold you back from achieving your retirement goals.

“Staying invested through stock market volatility takes grit, but it’s the only way to earn the capital gains and dividends that will ensure long-term financial security,” says Casey. “Staying too conservative with your investment choices is actually a much bigger risk long term because it means you might not end up with enough money to retire comfortably!”

No one likes to lose money. The secret to successful investing is to create a risk-appropriate, diversified portfolio, comprised of low-cost ETFs. Then set up automated contributions and buy and hold for the long-term.

Remember: while you won’t lose money holding cash and cash-like investments, your savings are being slowly eroded by inflation over time. Investing a healthy amount of your portfolio in globally diversified stocks will ensure a reliable and inflation-beating outcome over the long term.

“It’s difficult to predict exactly what the rate of inflation will be over the next few decades before your retirement,” says Casey. “But if you’re investing you can rest easy knowing you’re more likely than not to end up with enough.”

Get Your Higher-Paid Partner to Open a Spousal RRSP

Want to level the playing field in your own household? If you have a higher-paid partner, get them to set up a spousal RRSP.

A spousal RRSP lets common-law or married couples save for their retirement and lower their taxes. It benefits the lower-earning partner because it evens out the retirement savings between them. That means that if you have to take time out of the workforce, you will still have access to retirement funds.

The spousal RRSP will be registered under the name of the partner with the lower income and the plan belongs to them. They make the investment decisions and are the only person who is allowed to withdraw money. The partner with higher income contributes the money and can deduct the spousal contribution from their taxable income.

Just watch out for attribution rules which state that contributions made to a spousal RRSP cannot be withdrawn for at least three years or else the money becomes taxable income for the contributing spouse.

Max Out CPP contributions

Canadian women live longer than men, averaging 84 years for women versus 80 for men. That means women have a higher chance of living alone, dependent on one income throughout retirement. One way of ensuring a consistent income throughout retirement is to max out Canadian Pension Plan contributions throughout your career.

How does that work? The Federal government sets the Year’s Maximum Pensionable Earnings (YMPE) every year which is the foundation for CPP and pension contributions. The 2021 YMPE is $61,600. So, if you earn that amount over several decades, you will max out your CPP.

“If you’re anxious about qualifying for the maximum CPP because you took time out of your career to raise children and earned a lower (or even no income) during that time, don’t worry,” says Casey. “The Government of Canada provides child-rearing provisions to the CPP to recognize the loss in income that comes from raising children. You’ll receive pension credits for the months you earned low or no-income because you were the primary caregiver of children under age 7.”

Another way to max out your CPP retirement pension is to delay applying for it at 65 years of age, and instead, waiting until you are age 70. That way, you can enhance the amount you receive from CPP by 42% compared to what you’d get at 65.

Don’t make the mistake of taking CPP early – at age 60. Doing so will forfeit more than $100,000 worth of secure lifetime income.

Pay Yourself First

You might be tempted to save for your children’s education or gift a down payment for a first home, but the first rule of “financial fight club” is to pay yourself first. That means ensuring you have enough money to retire before everything else. Your kids can always apply for student loans, bursaries, or scholarships, whereas the best you can do is take out an RRSP loan. Only after you’ve taken care of yourself, then you can consider helping family and friends.

“Getting started is the hardest part, so focus on building the habit with a small amount,” says Casey. “Saving 1% of your income is a great place to start, then subsequently increase it in the following month or quarter until you hit your target amount. For example, if you start with 1% this month, then set aside 2% next month, and so on, you’ll be investing 12% of your net income after one year!”

Treat your savings like a bill payment to your future self. Automate it by sending the contributions right to your investment account every time you get paid. Behavioural finance suggests we won’t even miss the funds once they’ve left our bank account, and we’ll simply adapt and spend whatever remains. That’s why “pay yourself first” works, while “save what’s leftover in my account at the end of the month” does not. 

Avoid the “Pink Tax”

Have you ever noticed that women’s stuff costs more? It’s not your imagination: from razors to body wash to haircuts, women are often dinged by a hidden “pink tax” for the “women’s version” of various products and services.

In fact, one 2016 study found that women in Canada pay a “pink tax” premium of more than 40% over what men pay for personal care products (excuse me, what?!). The gender markups go beyond personal care though and can include other products/services, such as health care, car repairs, mortgages, clothing, and financial products. Overall, it’s estimated that the pink tax costs women nearly $1,400 USD per year.

It’s infuriating, but there are a few things you can do to fight back and save a buck:

  • Buy gender-neutral or men’s products. A razor is a razor. Unscented deodorant works on any armpit and it’s usually cheaper.
  • If possible, switch to reusable products (like menstrual products).
  • Complain! Contact companies and let them know this isn’t acceptable.

Negotiate a Pay Raise

Here’s some mind-blowing research: women ask for a pay raise just as often as men do, but are less likely to get them. That’s deeply irritating, but here are some savvy strategies to best position yourself to get that annual increase:

  • Document all feedback from your manager and keep track of your wins. Make sure to include growth numbers.
  • Look for mentors and colleagues who can help you advocate for your raise and overall career goals.
  • Research the market value for your role. Ask colleagues in your network and look at any salary research. This will help you choose a target number.
  • Always ask for more than you would accept. That way, if there is a lower counteroffer, you still have some room to negotiate and get your ideal increase.
  • Practice makes perfect. Before you go into the boardroom, ask a trusted mentor or friend to role-play your negotiations and give you feedback to counter any arguments.
  • Do it in person. We know this may be uncomfortable for some people, but Harvard Law School’s program on negotiation advises that this prevents misunderstandings via email. If you’re working remotely, do it via video.

Apply for Grants or Loans for Women-Owned Businesses

Thinking about starting your own venture? You’re not alone: nearly 85% of Canadian women indicated they were interested in starting a business.

If you’re taking the leap, there are grants and loans available to women. Some include Export Development Canada (EDC) has the Women in Trade Investment Program which has $100 million to provide equity growth to women-owned and led companies. The Business Development Bank of Canada has $15 million in funding for support and advice for women entrepreneurs whose businesses were affected by the COVID-19 pandemic.

There are also private activators that offer entrepreneurs loans to grow their business. SheEO is an organization of women who contribute towards a ‘perpetual fund’ that makes interest-free loans to other women.

The Bottom Line

We live in an unequal society that is biassed against women—and that’s not your fault. While we continue to lobby for change, there are ways to work within the system to ensure that we get the most out of it for our finances.

“It’s unfortunate that women are at a disadvantage in their incomes and careers compared to men,” says Casey. “But knowing where the challenges lie can help you navigate them better. Taking charge of your personal finances is the best way to ensure long-term financial security and sustainable wealth, and you can do it one step at a time.”

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