Planning for retirement is an important step for everyone, but for women, it can be uniquely challenging. Women often live longer than men, which means their retirement savings need to last longer. At the same time, women are more likely to take career breaks to care for children or aging family members. These breaks can lead to gaps in savings and make it harder to meet retirement income goals.
The key to overcoming these challenges is understanding and managing shortfall risk—the chance that your retirement savings won’t provide the income you need to maintain your lifestyle. A common goal is to replace about 70% of your pre-retirement income, and while this target isn’t easy to hit, knowing the factors that influence shortfall risk can help you make better decisions.
What Impacts Shortfall Risk?
There are four main factors that affect whether you’ll have enough money in retirement:
- How Long You’ll Live
Women generally live longer than men, which increases the risk of outliving retirement savings. For instance, in Malaysia, a woman retiring at age 65 has a 15% chance of not meeting her retirement income goals—even with consistent contributions for 40 years. Life expectancy is something we can’t control, but it’s crucial to plan for a longer life to avoid running out of money.
This risk becomes even greater if there are disruptions in your savings journey. Career breaks to care for family or emergencies like the COVID-19 pandemic—when many Malaysians withdrew from their retirement funds—can leave a significant gap in savings.
- How Much You Save
Saving enough is key to a secure retirement. Aim to save at least 23% of your income (11% employee + 12% employer). Even a small increase, like adding 5%, can significantly reduce the risk of running out of money. Create a savings plan to stay on track: review your finances, set realistic goals, automate contributions, and adjust as your income or expenses change.
Saving consistently, even small amounts, can have a big impact over time. Start early, and if possible, increase your contributions as your income grows. A solid plan ensures you’re prepared for a comfortable and secure retirement.
- How You Invest
Many people think of retirement savings as simply putting money aside, but it’s actually about investing. Why? Because just saving isn’t enough to grow your money and keep up with inflation.
Conservative investments, like keeping all your money in cash, often result in shortfall risks as high as 70%. Diversified investments, or strategies like target-date funds that adjust over time, are much better at helping your savings grow while managing risk. Investing wisely is especially important for women, who need their money to last longer.
- When You Start Saving
The earlier you start saving, the more time your money has to grow. Starting before age 35 gives you the best chance of reaching your retirement goals. But even if you start later, consistent saving and smart investing can still help close the gap.
Steps to Secure Your Retirement
Here’s how you can take charge of your retirement planning:
- Save as Much as You Can
Aim for at least the recommended 23% contribution rate. If possible, save more 5% to reduce the risk of falling short. Think of your future self—you’ll thank yourself later!
- Invest for Growth
Don’t keep all your retirement savings in cash. Choose investments that balance growth and safety. For example, diversified portfolios or target-date funds can help your money grow over time while reducing risk.
- Plan for a Long Life
Assume you’ll live longer than average and plan accordingly. This means stretching your savings and finding ways to make your money last.
- Get Professional Help
Retirement planning can feel complex, but you don’t have to do it alone. A financial professional can help you create a personalized plan, choose the right investments, and adjust your strategy as your circumstances change.
Closing the Gender Gap in Retirement
Women face unique challenges in retirement planning, but these challenges aren’t insurmountable. With the right strategies, you can take control of your financial future. Start early if you can, save consistently, and make investment choices that support long-term growth.
Most importantly, be proactive. Take time to understand your financial goals and the risks you might face. Working with a financial professional can give you the confidence to make informed decisions that support your future.
Planning for retirement may seem like a daunting task, but remember—you’re investing in yourself.
Taking the right steps today can help you create a secure and fulfilling retirement. What’s one thing you’ve been considering doing to prepare for your future?