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According to a recent study performed by Leading Retirement Solutions, a mere 50% of women business owners and leaders that participated in a national survey claimed to be early savers or have above average confidence in their ability to retire at the age they hope to. Though this is a far better percentage when compared to women in general, which sits at a meager 33% (according to another study by Prudential), it’s not great. If these numbers don’t surprise or sock you, they should! We are talking about 67% of the female population in the U.S. that are ill-prepared for retirement, and nearly half of women business leaders also fall into this category. These are staggering numbers in a time when pensions are going extinct like large land animals and social security can only be considered the spare tire to the car that should be driving your retirement.
A couple of questions probably surfaced in your mind as you read the statistics above:
1. Why is there such a large discrepancy between women in general and women business owners/leaders?
2. Why are only about half of women business owners ready for retirement?
Well, the discrepancy question can certainly be speculated upon. We could easily observe that women business owners are cut from a different cloth and because money rotates around their lives daily — revenues flowing in and operational costs pulling it back out — it’s never far from their thoughts. Though there is no specific scientific data to support this conclusion, it’s not difficult to surmise that individuals working with the strains of daily finance would most likely be more financially literate and better prepared for the future. However, if women business owners are so financially savvy compared to their non-business counterparts, then why are only half of them prepared for retirement?
Among other things, this is one area of concern that Leading Retirement Solutions set out to discover with their national survey. And what we found were three main reasons that explains why a large percentage of women business owners and leaders are not on the right path for retirement.
One of the first results to surface from the study was an apparent yet unique challenge that emerging women business owners face when it comes to reinvesting back into their business. How much or what percentage do you reinvest into your own company? This question, of course, is highly relative to every emerging business out there and there is no simple answer for it. However, what our study uncovered was an apparent need for these emerging business owners to reinvest not only profits back into the business but savings as well. This, of course, leaves little to no savings for their own retirement.
In fact, one of the top mistakes women business owners and leaders make is not contributing even the minimal amount to their 401(k) or Defined Benefit Plan. Even contributing 1% of your compensation now is better than saving nothing at all. Moreover, if you’re just starting out in your career it’s best to contribute as much as you can while external expenses, such as those related to beginning a family, are low.
Another way to make sure you are contributing to your 401(k) or Defined Benefit Plan is to pay yourself first. Think of retirement savings as a bill instead of a savings account. You have to pay your bills each month, right? If you don’t then you end up getting your car impounded, your cable turned off and the lights go out. Well, think of your retirement account as a way of pre-paying your bills that come due later in life, and if you don’t pay them then your retirement may indeed look pretty dark.
Watch out for the second posting in this three-part series where we will dive into the next result that emerged from this study and learn how to avoid the pitfalls of poor retirement planning. Or if you can’t wait you can access the full study performed by Leading Retirement Solutions here.