Waking up the Sleeping Tigress!

I was just reading an article about challenges for woman’s retirement.

The article listed a lot of concerns with women’s retirement, but the advice seemed a little outdated. The article focused on funding the gap in women’s retirement by either getting a second job or postponing retirement.

How about focusing on saving more money earlier in life? Or working on a side hustle if you have stepped away from your 9-5 to raise children? Or gaining new skills that can move you into a higher pay scale?

The Facts

The article pointed out several things that are concerning. Women are more likely to live in poverty during retirement, women tend to have more medical bills and women, on average, save 43% less than men for retirement.

The National Institute on Retirement Security, a nonprofit research center, reports that women, aged 65 and older, are 80 percent more likely to be living in poverty than men. 

We need to fix this and education can help!

Invest! And invest early!

Even a small amount of money invested in an index fund started in your early 20s can substantially change your retirement lifestyle.

Let’s work through an example…

The mainstream recommendation is to save 10% of your salary towards retirement. If you make $50,000 a year that is $5,000 a year or $96 a week.

Using the calculator on investor.gov lets calculate the compounding interest. Let’s plan just to save and invest $385 a month for retirement.

This is saving around $4,620 a year. Assuming a rate of 7%, you could have $437,000 after 30 years or around $1.3 million after 43 years.

You can read more about why I used the 7% rate of return above in this article on, “Where does 7 come from when it comes to long term stock returns?”. I, and more importantly, a bunch of financial gurus, feel that a 7% return can be traced to historic tracking of the stock market in the last few decades and can be safely used to predict future returns.

What’s that saying, the only certain things in life are death and taxes? Sometimes you need to take a well educated risk. *Disclaimer* I’m not advocating for a new investor, or even an experienced investor, to start buying stocks. There are a plethora of articles online about safe ways to start investing. I highly suggest you research ways to start investing and educate yourself on the benefits and pitfalls. 

The Power of Time

Compounding interest is an extremely useful tool, but the passage of time is a very important factor that needs to be considered. Most financial advice tells you to start when you are young. Why? Because time is a critical part of the calculation.

In our example above, it hopefully is obvious that there is a significant difference between the amount saved after 30 years and the amount saved after 43 years.

YearYearly SavingsInterest EarnedTotal Savings
305000 $33,061.28  $505,365.21
315000 $35,725.56  $546,090.77
325000 $38,576.35  $589,667.13
335000 $41,626.70  $636,293.82
345000 $44,890.57  $686,184.39
355000 $48,382.91  $739,567.30
365000 $52,119.71  $796,687.01
375000 $56,118.09  $857,805.10
385000 $60,396.36  $923,201.46
395000 $64,974.10  $993,175.56
405000 $69,872.29  $1,068,047.85
415000 $75,113.35  $1,148,161.20
425000 $80,721.28  $1,233,882.48
435000 $86,721.77  $1,325,604.26

To put this into perspective, in those additional thirteen years you are only contributing about $65,000. But you could potentially net about $820,000 in additional savings towards your retirement. This is the power of time!

The Power of FI

The FI movement utilizes this compounding interest formula like you would in a traditional retirement. Only it focuses on the potential growth in the last thirteen years. To achieve this, it increases the savings rate to 30%, 40% or even 50%.

Mr. Money Mustache explains this much better than I ever could. In this blog post, he explains the simple math behind FI and the power of a higher savings rate.

The Tigress!

Throw that 10% savings rate out the window!

We women can do better than that!

We need to be thinking beyond the day to day and take a look towards the future. We must be determined, as our retirement lies in our own hands.

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