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We’re all aware that men and women aren’t the same, and these differences mean that conventional wisdom doesn’t always apply to both groups equally. Just as a doctor may follow different medical guidelines for male and female patients, it’s the same for financial recommendations: what’s good for men isn’t necessarily the best strategy for women, and vice versa. This is especially true when it comes to retirement planning: women need to know how to save more for retirement than men.
Conventional wisdom says that you should save 10% of your income for retirement. But new studies suggest that number isn’t going to cut it for women. In fact, the advice given to women about how much to save for retirement may be so far off base that, according to the Broadbent Institute, 28% of senior women are currently living in poverty in Canada. In this article, we take a long look at what’s behind the “gender retirement gap,” and how to save more for retirement. That way, you can rest easy knowing that have enough saved for your golden years.
What is the Gender Retirement Gap?
When planning for retirement, women face specific challenges that men do not. The result is that women tend to retire with less money in their TFSAs or RRSPs than men. The gender retirement gap isn’t due to any single variable, but a perfect storm of factors that together result in women retiring with far less money than they’ll need to live comfortably in retirement. Let’s take a look at a few of the reasons why a gender retirement gap exists:
Women Earn Less
While the gender wage gap is slowly narrowing, even today, women are consistently out-earned by their male counterparts over the duration of their careers. According to a 2018 Statistics Canada report, women take home just $0.87 for every dollar earned by their male coworkers. A smaller pay cheque means less money to send towards retirement after basic needs (like food and housing) are met.
Women Tend to Play It Safe
Women also tend to invest more conservatively than men. While it’s common for men to adopt a DIY approach and choose to manage their investments themselves using a discount brokerage like Questrade, women tend to be more conservative with their money. Instead, they often favour high-interest savings accounts and guaranteed investment certificates (GICs). While these can be great short-term saving strategies, these investment options offer a lower return, stunting the growth of their money over the long term.
A good alternative to these low return investment tools is to move their money to one of the leading robo advisor like Wealthsimple, where it can grow faster without paying the high fees associated with mutual funds or the hours of research associated with a DIY approach. More on this later.
Women Live Longer
Women are earning less, saving less, and choosing investment strategies that yield less. But because women generally live longer than men, they need to squirrel away more money in their nest egg. According to Statistics Canada, women live four years longer than men on average, and those extra years are also some of the most expensive in their lifetime. Four years longer doesn’t seem that long, but if you assume a retirement age of 65, that’s 28% more years spent in retirement.
Women Are More Likely to Leave the Workforce
Women have made great strides towards equality in the workforce, but when it comes to taking time off to care for children and elderly relatives, they still tend to bear the brunt of the workload. Women will spend on average 10 years less in the workforce than men, which means ten fewer years to contribute to RRSPs or pension plans.
Strategies for Tackling the Gender Retirement Gap
With 28% of senior women in Canada living in poverty, the gender retirement gap isn’t just a cute term — it’s a real threat that must be planned for and mitigated. Here’s what you can do to make sure you aren’t on the losing end of the gender retirement gap.
Spend Less Time Out of the Workforce
When deciding whether or not to leave the workforce for either a brief time or an extended period, consider how that time away from your career will affect your income and retirement contributions, both in the short and long term. Where possible, such as for parental leave, consider sharing your parental leave with your spouse (if you have one) so that you can return to work sooner and resume saving for retirement.
Open a Spousal RRSP
The decision to leave the workforce is a personal one, and there are other factors to consider beyond the financial implications. If you do choose to leave the workforce for an extended period, your partner can choose to contribute to a spousal RRSP. A spousal RRSP will give your spouse the tax-break during the year they contributed but will be available to you in retirement. Spousal RRSPs can also be useful to minimize your taxable income in retirement, by spreading your retirement nest egg across two accounts. You can easily open a Spousal RRSP with one of Canada’s top robo advisors and online brokerages. For RRSP investment accounts, our top choice is Nest Wealth: with their competitive fees, no minimum investment requirement, and customized portfolios, they're one of the best of the bunch when it comes to retirement planning. As a bonus, Young & Thrifty readers can try Nest Wealth free for the first 3 months.
Investing More Aggressively
If you’ve been keeping your retirement savings in high-interest savings accounts and GICs, it’s time to rethink your strategy and choose a more aggressive investment strategy. If you're new to investing, the easiest way to get started is to sign up for one of the best robo advisors in Canada.
Robo advisors might sound like an intimidating term, but these companies make use of automated technology and intuitive questionnaires to design a portfolio that matches your risk tolerances and is optimized for your investment horizon. Most robo advisors in Canada use ETFs to build your portfolio, and they rebalance automatically on your behalf. All you need to do is sign up and start making contributions. Our favourite robo advisor in Canada is Wealthsimple and you can read all the reasons why we love it in our Wealthsimple review.
If you’re comfortable with DIY investing and want to save money on fees, think about using an online brokerage. Although they don’t offer any financial advice, online brokerages like Questrade (our top pick) charge almost no fees and you can build your own portfolio. With self-direct investing, you are the boss and fully in control of your money. If you want more information, read Young and Thrifty’s Ultimate Guide to Canada’s Discount Brokerages, but here's the short story: with its rock bottom fees and easy to use trading platform, Questrade wins out as our favourite online brokerage in Canada. You can read more in our Questrade review.
Start Saving 18% of Your Income
Saving 10% of your income won’t cut it, but how much is enough? A study published by Diane Garnick suggests that 18% is a better number for women, but that number might seem steep, especially if you’re currently struggling to make ends meet.
Don’t let that high number intimidate you. The important takeaway is that you should save as much as you can and make incremental improvements when your budget and your income allow. By slowly ramping up over time, you’ll reach a savings rate that will ensure you are not one of the many senior women that end up in poverty, and instead, you’ll secure your financial future and retire comfortably.
Yes, the gender retirement gap is real and it’s yet another hurdle for Canadian women in the struggle for gender equality. But don’t stress too much: as long as you’re aware that it exists, and you use smart investing strategies to take on the challenge, your nest egg will be ready to hatch in your golden years. Just remember, knowledge is power and now that you’re “in the know,” you can overcome this hurdle!
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