Women, money and the barriers to wealth

September’s Real Simple features an article on “Women and Money” and “Why you need to take control now.” Author Geraldine Sealey writes of putting off opening a 401k for a decade for…no good reason. “Like millions of other women, I was perfectly happy to pinch pennies and hunt down sales, yet I couldn’t muster the slightest interest in big-picture financial planning. What the heck is going on here?”

It’s a good — and important — question. While women have “more power and earning potential than ever before,” there’s still an income gap and a wealth gap. Why? Plenty of employment discrimination, to be sure, but I’m thrilled that Real Simple also chose to include two factors I identified in an interview with Sealey (and quoted me on them!): “We sweat the small stuff” and “We’re waiting for someone else to fix the problem.”

Regular readers of this blog know I sound like a broken record lamenting that first one. A recent Citi Economic Pulse survey found that 76 percent of women claim to regularly clip coupons. We see coupon-clipping as the female definition of being smart with a dollar. But why are we concerning ourselves with nickels and dimes instead of focusing on the big stuff, like maximizing income and investing for the future? As Eleanor Blayney of Directions for Women told Real Simple, “When they find themselves hitting up the sale racks, women need to remember that even the best deal they find is worth far less than a smart investment in their retirement fund.” (Even if you don’t plan to retire!).

As for that “maximizing income” idea, this gets at the second factor. As I told Real Simple, even many young women grew up “with the idea that they would be secondary earners.” We grow up with the idea that our income is expendable, that working for pay is a choice, and that we can cut back our hours or scale back our careers for a while if we need more work-life balance. This is all fine…if you assume that you will always have a husband or partner who can give your children the life they deserve. But what if, for whatever reason, the children’s standard of living someday rests on you? Which it does for, by some measures, a third of families now? If so, taking your foot off the gas for too long can mean reduced opportunities for them. This is one reason I tend to think that maintaining one’s earning capacity is part of mothering. Obviously, life happens and sometimes people have to take career breaks or slowdowns for a time. But even so, being financially savvy means maintaining professional certifications, keeping your hand in by attending networking events and taking on freelance projects on at least a quasi-regular basis.

Of course, there are some families in the 1% for whom the volume of assets means that, even in the event of a breadwinner’s death, disability or a divorce, everyone would come out OK. Should these women take their feet off the gas? If they want to, there’s less harm, certainly (unless the assets disappear; companies do go bankrupt, to list one disastrous option). But I dislike the way this issue is often phrased, that if a woman doesn’t have to work, that should answer the question. For starters, the volume of evidence is that children aren’t harmed by mom being employed. Striving toward professional goals is a major component of human happiness. Women who don’t “have” to work can have a lot to offer the broader world, not just in a volunteer capacity. Plus there’s always the question of what you model for your daughters who, in any event, aren’t going to marry dad.   

In other news: I was going to write a Todd Akin post, but thought better of it.

I’m also in Real Simple this month with an article (p. 140) on how job seekers should manage their online presence.

51 thoughts on “Women, money and the barriers to wealth

  1. Annamarie Lusardi and Olivia Mitchell have a few papers empirically looking at why women are less likely to use their retirement options than men are. I can’t remember what their bottom line was off the top of my head though. (I can remember a bunch of competing explanations including financial literacy, but not what they found.)
    ***
    Hrdy talks about how women’s ambition is entertwined with their reproductivity in a positive correlatin sense.
    ***
    My typos are because there’s a sleeping infant across my chest and arms and I can’t reach the delete key on the laptop to fix them.

    1. @N&M – I saw that mention on Cloud’s blog about Hrdy saying ambition was correlated in some cases with reproductive success. And there’s some evidence that this is explicitly happening with people now — being a high-income woman now increases your chance of getting married, just as it always has been the case for men. It’s definitely not a detriment.

  2. @Laura – welcome back…I totally agree with you on both those points. In fact, when I was reading your post about the trip to San Diego with the kids, one of my first thoughts was: This is one of the reasons I work…I know it’s not the end of the world if your kids never go to Sea World (I certainly didn’t as a child), but I like the freedom to fulfill a 5 year old’s dream vacation. If we relied solely on my husband’s salary, we wouldn’t have that same ability. I know this might sound materialistic, but I really don’t mean it that way. I’m a firm believer in teaching children the value of hard work and money, and I really do not give in to most whims of my kids. Certainly, money alone cannot make you happy. However, money buys freedom – the freedom to have (by and large) the life that you want. And you don’t need to be in the top 0.1% to get it, but if you’re scraping by, it’s a lot harder.

    1. @Rinna- thanks! I agree that money is a tool to help you create the life you want. And many of us can do things, over time, to increase our family’s income if we want.

  3. I’ve had a 401(k) for 14 years and have lost money after inflation, along with millions of other people. I think it’s important to save for old age, but women often do it in other ways. They are disproportionately teachers and government workers, who still have pensions plans, and so save in other ways. (My teacher friend points out that no non-public retirement plan will match the 8% return our state guarantees.)

    I think research on “working mothers” incorrectly convolutes women with supportive husbands, women working part-time and women working full-time professional jobs with similar husbands. My physician friend talks about how some of her colleague’s kids are messed up, in her opinion because neither parent had time (and bandwidth for flexible parenting) in the teen years.

    I envied your trip to San Diego because if I worked, I’d get only 2 weeks vacation as a new employee, all of which would have to be used to stay home with sick kids. I could never visit my family out-of-state. I couldn’t stay home between Christmas and New Year’s.

    I think a better way to look at employment by both parents (why assume the woman should stay home?) is in terms of trade-offs for families with incomes around the median. Is it worth 12 hr in childcare (must consider big city commutes) for a child to have 2 working parents? Is it worth having to attend school or daycare somewhat sick (perhaps not “legally” sick, with a fever over 101) instead of staying home to rest? Can a family afford paying MORE than the lower spouse’s after-tax income in childcare to maintain a career?

    The women I know who are committed to staying home full-time feel called to it. I expect they will move back with their parents or a sibling if disaster strikes, because they have few employment skills. It was ever thus.

    1. @Twin Mom- the unrealistic assumptions made for 401ks (and to be honest, public pensions, though they will get protected longer) is one reason I advocate that women need to be good about earning *more*. You can’t just rely on compound interest to grow a nest egg. If you want big amounts of savings, you need to save big amounts. The easiest way to save big amounts… is to earn big amounts. Obviously, there are plenty of high-income families that don’t save, but it is much easier to do so than on a lower income — stats that are shown by survey numbers from the Federal Reserve (the vast majority of families in the top 10% of income save — far fewer do from lower income brackets).

      I also tend to think the childcare math is problematic because it completely discounts future income. Two-income families do not need full time childcare forever. Eventually the childcare bills will go down, and the parent that would have been out of the workforce will most likely see his/her income rise if he/she stays in. Even if childcare consumes everything you make after taxes (or possibly a bit more), the economics do change within a few years. Paying for childcare is an investment in one’s future earning capacity, in the same way that going to college or graduate school is an investment in one’s future earning capacity. I certainly wouldn’t tell a young person “don’t go to college because it will cost money and you could be earning money instead during those 4-6 years.”

      1. I don’t think incomes rise (or rise significantly) by being in the workforce for most of the careers women have, especially if they don’t take on additional demands.

        Let’s look at some female-dominated, relatively high paying fields and guess:
        teacher: pay scales top out at ~$60k + benefits after a fixed number of years of service. Raises along the way are incremental, 3-5%.

        nurse/physical therapist/physician: pay scale largely independent of years of service; I know women who have returned after decade plus absences and more than doubled their salaries.

        nursing assistant/ administrative assistant: small raises are available, but base salary is insufficient to pay for childcare for multiple children.

        retail management: raises are available for people willing to move to larger stores; this assumes you are geographically mobile, unless perhaps you live in a big city.

        In my field, engineering, you hit the median salary in a decade or so. Layoffs are common and, from the last statistics I saw, less than half the people trained in the field remain in it, due to demand for newer, cheaper workers.

        Law, business, and perhaps high-level marketing are the main fields I can think of with significant salary increases available.

        The problem with childcare is quality. I agree that high quality childcare is fine for children, but only 10% of childcare is considered “high quality” and most parents can’t afford that.

        1. @Twin mom
          Teaching and nursing are actually exceptions. Because they are female dominated and because women who select into those fields demand the ability to take time off without it hurting their long term careers they’re in an equilibrium in which it is easier to re-enter the field after an absence than many other jobs. (They pay for this flexibility with lower salaries than they would otherwise get, though unions pump their wages up.) Women, Men and Work, a textbook by Blau et al goes into more detail on these specific fields. (Though note, you could lose out big on pension benefits in a teaching career if you stay out too long, and for both fields there’s recertification that has to be done periodically.)
          ***
          There’s quite a bit of growth in most administrative (admin assistant) careers. They’re not dead-end jobs. Leaving a clerical position to leave the labor force will hurt your future earning potential.

          1. Fair points. The benefits of many women in a field for work-life balance (which my male gynecologist commented on, having observed it over his career) is probably something I should have considered. Engineering/computer science have gotten worse in terms of flexibility and hours, not better, as jobs have been outsourced and competition for the remaining jobs has increased.

            It’s unfortunate, because for those of us who like them they are good fields.

          2. @Twin Mom- what’s interesting about the OB/GYN example your doc observed is that the entrance of women to the field has changed the assumed model of practice. There are few solo practitioners anymore. Instead, you have a team of 5+ doctors/midwives, any of whom could deliver your baby. Actually, with my last one, I was told that they teamed up with 2 other practices, so it could have been any of 12 doctors (though most likely not, since I had a scheduled induction — which we obviously scheduled so my own doc could cover). So the trade-off is that some amount of personalized care is lost. On the other hand, only having to cover 1-2 nights a week doing deliveries is a much more family friendly schedule than being on 24/7. So you get OBs who are moms — and who are more understanding from that perspective!

          3. Family-oriented doctors tend to like being in HMOs according to an NPR report I heard the other year. They like more predictable schedules and not having to do paperwork or worry about the business side of being a doctor.

      2. The market has beaten inflation in the past 14 years. If your portfolio hasn’t, there is something wrong… fees are too high there’s not enough diversification or there’s too much trading going on. Matching the market has gotten easier recently because of low-fee target date index funds. I don’t know what your 401(k) options are, but Vanguard, Fidelity, TIAA-Cref are all reasonably good choices. Ing, Edward Jones, and many others are much too high fee. And within those, index funds or ETFs are the way to go.
        Women actually do better than men when they do invest in the market because they trade less.

        1. The S&P 500 has gone from 1330 in May, 1999 to 1412 at the end of the chart, for an increase before inflation of 6%. The US inflation calculator says inflation was 38% from 1999 to 2012. Even assuming I paid no fees (I have low fees from Fidelity), I still lost roughly 30% of my purchasing power to inflation.

          If this calculation is incorrect, I would really like to understand how.

          1. So you’re saying you put 100% of your 401K into the stock market exactly when it hit a peak compared to inflation, right after a huge run-up and before a little recession? You didn’t, say, dollar cost average over that time? You didn’t put money into the market during the recession itself? Or before the big tech bubble run-up? That’s not diversifying over time. If it was a regular 401K, chances are you did put money in on a regular basis and thus did benefit from lower cost times. Another point: the numbers you’re quoting don’t take into account dividends– a good portion of S&P 500 stocks do give dividends and your values would be higher if you included DRIP returns.
            ***
            Additionally the S&P 500 isn’t completely diversified, but it’s better than just having the Dow for long-term investing. For complete diversification you would add more risky tech indexes, emerging market funds, and foreign market indexes. (Or just a total market fund.)

          2. I was able to open my 401(k) in 1998, back when you still had to be “vested” to open one. I didn’t spend the time to do exact calculations on my particular investment selections, but returns on a portfolio of stocks/bonds (with bonds 100- your age) have lagged inflation over the past decade to decade-and-a-half. I concur with Laura that returns won’t make up for lack of savings. I suspect that for us, unlike for our grandparents,the value of late-in-life saving will outweigh that of early-in-life saving.

          3. That said, Laura V’s point about earnings/savings being more important than compounding is a good one. There are several studies now showing that the best way to help your retirement is to work more years compared to any other strategy. That doesn’t mean that investing is futile, however! Just that our safety net is eroding, defined benefit pensions are disappearing, we’re living longer, and we’ve got to take care of ourselves.

          4. “returns on a portfolio of stocks/bonds (with bonds 100- your age) have lagged inflation over the past decade to decade-and-a-half”

            Where are you getting this? (Also: retirement savings should be longer than a decade!) And it can’t be the same for everyone because people are different ages. If this were always true then everybody should invest in TIPs, but TIPs are a terrible long-term investment compared to the market.

          5. Logged into my etrade account. It tells me that our investments over the past 10 years (regularly invested over that time period) have gained 74% on average. Our Nasdaq ETF has gained 123%. Our newest index, EFA, which I think represents the emerging market portion of our portfolio has technically lost $353 since we bought it. However, since we’ve had it, we’ve gotten more than that in dividends so even though the value has dropped, we haven’t actually lost anything. So a counter-example.
            You can pick any two points in time to make any argument you want (that’s where Dave Ramsey gets his 12% number). What is important is regular diversified investing in low-fee broad-based funds. IIRC, the market generally returns 5% real returns (so inflation + 5%), or maybe that’s what it is predicted to do in the future (it may have been 7% in the past, but that might also have been nominal returns… my memory is fuzzy).
            ***
            I love me some stocks. I love watching my money grow, and with little to no effort on my part. I wish I had more money to put in there! Another good reason to get more income. And it is still a good idea to get rid of high interest debt and to start investing while you’re young so you can benefit from compounding. It’s also a good idea to make a lot of money in the labor market. Or to figure out an “enough” that is small but keeps you happy if you value your time more than money. Still, a high hourly wage can only help.

  4. I see the “sweat the small stuff” mindset a lot on Pinterest, with women pinning links such as “how to buy $50 for groceries in one week” and DIY projects. I know that many of these things are hobbies some women enjoy, yet I wonder why only two of my female friends use Pinterest for their careers. (One pins photo-shoot ideas for her photography business, another showcases her custom decal and monogram creations. One male friend pins marketing statistics and ideas.) I would like to see more pins about long-term goals.

    1. @Susan- I’ve spent a lot of time pondering the coupons-and-deals mentality. I think it’s appealing because there’s an immediate payoff: I could have spent $4 on this toothpaste, but I only spent $2. yay. Except it’s $2. The payoff of positioning yourself for a promotion or raise or a different and better paying job is so much less immediate and certain that it’s easier not to think about.

      1. I’m not a coupons-and-deals kind of person, but I am frugal. My frugality is more of a simple-living, wise-spending sort of philosophy, though.

        And most of the frugal things I do have other motivations as well…I cook from scratch instead of getting takeout not only because it saves money but because it’s usually better for the environment and our health.

        I also try to focus most of my frugality time on things that make a big impact. Not to harp on an example, but cooking has an enormous payoff for a family of six. Eating out doesn’t cost that much for 2 people, but for 6, the bill gets to be pretty crazy.

        1. @Kristen – we definitely eat out less with 5 of us (even if one doesn’t really eat yet). It’s not so much the expense as you’re spending money for something that’s not enjoyable when you’re wolfing down your food to race after the 2-year-old and get done before everyone starts whining 🙂

          I like the philosophy of focusing on big stuff. Spend less on the house than you can. 15 year mortgage instead of 30 (to save on interest). Refinance if interest rates drop a lot. Pay cash for cars. Move to a lower cost state, and ideally into a neighborhood where the kids can go to public school (unless you have philosophical reasons for doing otherwise). Those things have a big return. The $1 off 2 tubes of toothpaste from a brand you’ve never tried before? Eh.

          1. These aren’t mutually exclusive options. Once can consider the cents and still look at picture items. Financial advice columnist Michelle Singletary is very strong on this point (though I’m sure she’d object to many of the ways I live). She has a saying (which I am likely butchering as it’s been a while since I read her), tht if you watch the cents, the dollars will follow. If you care about $2 on toothpaste, the point is that you should necessarily care proportionately about the $500 car payment.

            As between overbuyer and underbuyer, I fall in the overbuyer category. I’ve found exercises where I focus on for a period of time on how each and every cent is spent makes me appreciate each cent, and I spend more cautiously in general. Toothpaste doesn’t offset a ridiculous mortgage, but the idea is that you will fully realize what a bad idea it is and resist getting into one.

          2. @WashGirl – I will grant you that people who are careful with money are careful with it in all amounts. But I have to say, as an underbuyer too, these days I’m working on being a bit less careful with the cents, because small luxuries play an outsized role in human happiness… Spending $100 less per month on your mortgage basically means you can have a latte every day. Sure, the lobster is more expensive at the supermarket than pork chops, but it’s more fun — one reason to negotiate down the price of the car. A few thousand off is a lot of lobster dinners!

  5. I read the Real Simple article and thought it was pretty good. My one beef is that most women magazines, except for “More” geared towards 40-somethings, tend to focus on the very basics. We non-beginners need good investment tips, too.

    Also, wanted to second Laura’s point, in the comments, that many women only factor in their current income when they quit working and forget about raises, bonuses and compounding interest. If you “only” save $5,000 or less after childcare, you can still invest that money and investment income adds up. Even if you don’t get a raise, your current job is probably better paying than any job you can get after being out of the workforce for ages. Of course money isn’t the sole factor but I just wish women were more honest/realistic about the loss of income.

    1. @OilandGarlic – my main beef with the article (which I thought was good too) was that most of the sidebars were money makeovers about getting out of debt. I would have preferred to see more about people aggressively trying to earn more money. One woman, “the accidental debtor,” goes from earning $35k to $65k, but the article just sort of mentions it like it just happened when she changed jobs. Since many people think it would be nearly impossible to double their income, I would have given that story more real estate.

  6. One of the best pieces of advice I got from my dad was to start contributing to the 401k with my very first real paycheck, so I wouldn’t “miss” the money. It’s automatic so I don’t even need to think about it. (i HATE dealing with money.)

    Also, one of the things my husband did before he quit was to max out his 401K contribution for the year.

    Such a boring topic (did I mention I hate financial stuff?!) but so essential to have a cushion, either for later in life, or if you *really* need it at some point. It helps me sleep better at night.

    1. @ARC – I think that’s the key thing people should take away from the money discussion: financial freedom is a big part of life freedom. A cushion means you negotiate from a position of strength. You can leave a job you don’t like. You don’t have to take another one immediately. All wonderful things.

  7. I don’t think any of you have clearly made a compelling argument for why I should have a 401K or why the non-pension system of retirement is good for the average American woman in terms of building wealth.
    What is the rate of inflation – 3%?
    What is the rate you can reasonably expect to get from investing your x,xxx or xx,xxx over xxxxxxx. Why would I want to do this versus say buy a second property and try to collect rental income or for that matter rent a room in my house or just make less taxable income– How much are you “making” if you put your money in Vanguard year over year? 6% ? So is that 3% after inflation? I don’t honestly get the obsession with putting all your money aside for when you are 70 years old.

    1. Also women are poorer than men in America. Period. And it’s not just because, “We like to cut coupons.” Single women are very likely to be empoverished, single women with kids more so. Most women in America still “earn” their upper middle class status through marriage, and that is very messed up in a “modern” society where we are all supposed to be equal to men, and professionals after education. Our tax system punishes women — especially working moms for working. Period. Working wives probably even more. Childcare is very very expensive and iratic and hard to execute in our society against a traditional job, particularly if you are in the middle class. Women do take a financial hit for having children in america. That doesn’t seem fair since 80% of women in America have children and so many women have college degrees. There is something going on in our society that you guys aren’t really hitting on.

    2. I’m not going to touch the argument about saving for retirement. It is your money, you do what you want with it. But our “fallback” of social security doesn’t go very far.

      I think you are hinting that the article and comments aren’t acknowledging the role that sexism plays in keeping women from being as wealthy as men. You won’t get any argument from me about that AT ALL. But the next question is: what do I do about that in my own personal life? My answer to that is that I try to make the best decisions I can to maximize my happiness within the constraints of a sexist society that is not going to stop being sexist in a timeframe that is useful for me. Part of maximizing my happiness has involved building up substantial savings, both within my retirement account and outside of it. As Laura references above, having some measure of financial security softens some of the sharp edges in life. If I really, truly hate my job, I can quit and then look for a new one instead of forcing myself to stay and suffer until I can find something new. If I lose my job, I don’t have to panic. Etc., etc. I have my financial buffer in large part because I make a good salary, but also because I have chosen to live below my means. I make a good salary in part because I have prioritized career at key points, in part because I’ve made some good decisions along the way, and in part because I’ve had some good luck. I can’t control the luck part of the equation, but I definitely want to try to maximize the “good decisions” part.

      1. I agree with this. but the question is how does a woman with kids in america do this? married or otherwise. how does a woman in america with kids save the kind of money you are talking about. she
        a. marries a man who makes $500,000
        (let’s not talk about how far this answer is from what most of us went to college and teach our daughters)
        b. She saves x,000 at 3 or 4% in the stock market (does this really give her the kidn of freedom you are talking about)

        my point was saving for retirement when you are 70 doesn’t really answer this question of how to make women wealthier and it doesn’t deal with the issues of self actualization versus care giving that most american women face now today.

        1. The money that gives me freedom is not in the stock market. I do not count money in the stock market as part of my buffer- my buffer is only money in boring safe places like savings accounts. I have certainly made some money from stocks that was then moved into the buffer, though. I insist on 3 months’ expenses in my buffer, and that is what gives me freedom. We currently have 5 months’ expenses in our buffer plus riskier accounts. We also both have solid retirement accounts- both well into the six figure range at this point. I am 40 and my husband is 37. We figure that we need seven figures to retire and not work, and we realistically don’t expect to get there until we are closer to 70 than 65. We might choose to change goals to working differently- but that is a long way off, so we’ve only talked very speculatively about that. Also, that 7 figure number is based on having a very comfortable retirement with a lot of travel. It also assumes we live to 100, because I have a family history that indicates that is reasonable- my grandparents are in their 90s and going strong, and I had great-grandparents live to almost 100. Both kids also have tax-advantaged educational savings accounts. I consider those underfunded right now, but our kids are only 5 and almost 3, so we have some time to fix that.
          You’re curious how we did that. My husband and I both make good salaries, but nowhere near $500k. Not even within spitting distance. I’m not comfortable disclosing my income online, but we can say that we are still in the group that get tax cuts from Obama’s latest plans, but just barely. We live in San Diego, which is an expensive city, but not quite as bad as San Francisco or NYC. I have been through two short periods of unemployment in the last 10 years- 2-4 months unemployed each time. My 3 month maternity leaves were partially paid, via California’s FMLA and my disability insurance. We both took unpaid 4 month leaves the year before we had kids, and traveled.
          How do we do it? We lived well beneath our means for many years and saved the difference. That is flippant and trite, but also true. Since our second child was born, we have not seen our net worth go up much (outside of retirement), but now that our first child is about to leave day care for (public) school, that should improve. We have been helped substantially by two pieces of employment luck: I made about $10k from stock when a company I worked at went public (this was not a startup- I’ve worked at three of those and only lost money on those stock options). My husband makes a few extra thousand a year from his employee stock purchase plan, because his company is doing pretty well. On the flip side, I have only had a partial company match on my retirement savings for about 6 of the 12 years I’ve been working post-PhD. I had a big lead on retirement savings when my husband first came to the US, and he has now made that up, primarily because his employer provides a decent match on 401k contributions.
          Really, the way to build up a nest egg is slowly and patiently, and not relying on returns from the stock market. We save far more than 4% of our income. I’d have to check to be sure, but I think our retirement savings alone are close to 10%. But we still do things like take vacations. We drive newish cars. We have a nice enough house. We eat out. I do not feel deprived.
          I grant that my husband and I are in an extremely lucky income bracket, and that makes a big difference. But I started my buffer when I was making far less money. I have just scaled it up as my income scaled up. We have also been lucky not to have any major calamities befall us- no long illnesses, etc.

          1. @Cloud- I think you can just put this comment straight on your blog and have a post. Just trying to save you time 🙂

        2. @Cara- you’re correct that it’s hard to make the math work for building up $1 million or more in assets on middle-class incomes. It’s a staple of personal finance books to claim it’s possible just by saving $3000-4000 a year if you start early, but the rates of return some of these people promise are a bit unreasonable. To build up 7-figures in assets, you probably need to start a business that grows to be worth that amount, or you need a solid 6-figure household income for many, many years. I’d like to see more women doing both!

          1. The stock market still beats inflation to heck though!
            ***
            And actually, I’ve been just amazed at how much our net worth has gone up just in stock market earnings alone. Without the stock market we wouldn’t have had a down payment for our house after graduate school. Without the stock market, our 529 plans would be worth a heck of a lot less right now. Without the stock market, we wouldn’t be back on track with our retirement savings (those years we earned next to nothing in graduate school) so that DH quitting his job next year doesn’t hurt our long-term picture. How? Regular investing. Broad-market low cost index funds and ETFs, weighted towards risk because we were and are young (so more Nasdaq than a 40 year old should have). Buy and hold. At one point we lost 50% of our balance, but it has since come back and then some and we’re way ahead of what we put in. No, the stock market doesn’t earn anywhere near what Dave Ramsey says it will and even if he’s half wrong you won’t get half of what he says you’ll make (because compounding doesn’t work that way), but 5% real returns (that’s net of inflation) on average over a long period of time is very nice and beats working for that money.
            ***
            I was thinking about making a blog post on why you should invest in tax-deferred funds for retirement and why stocks are a good place for long-term investments… but I think my readers would complain that there’s no news there. This is the weirdest discussion I’ve seen on the topic in a long time.
            ***
            Also, 1 million isn’t what it used to be. And 100-250K/year is still considered to middle class in polls. Getting 1 million isn’t that easy when you’re on the low end of middle class, but you will need more than 1 million to live as you’ve been accustomed when you are in the upper end of middle class. (Also keep in mind that home equity belongs in your net worth when considering retirement options.)

          2. Yes Laura ! This is the laura I know and love. I’m not trying to criticize the women who are trying to do the right thing and save .. and ask my husband I am the queen of frugal … but I agree with you that just being frugal and asking women to cut coupons this isn’t the kind of empowerment women are looking for. An honest conversation about how to make women wealthier whether or not they are married is what I am looking for.
            Also one of the men on here wrote kind of a flip comment about how men work MORE and that is why they have more. I find these kind of comments to be a bit out of touch with reality and unfair to families. My husband will tell you he works more hours but I do Way more parenting ad do most women or primary parents. I also work a lot and provide a lot of the families income – to be clear my husband and I run a small business together so it is kind of unclear who earns what but I handle all the sales and he does most of the production and distribution. many women are looking for a way to be financially secure on say 35 to 45 hours of work a week with flexibility to be good parents. it is my belief that they can have this but that just telling them to go work for the man and save for retirement may not be the best way. What we need is conversation and policy that supports women earning more (affordable, quality local childcare) and supports say both parents doing both more parenting (like a tax cut for parents who stagger shifts or something like that –there are ways to empower people etc. I’m pro marriage and everything but I also think that we could be more pro entrepreneurship, property ownership, pro women working as good for the society … and it is weird how when you challenge the status quo about retirement people flip out a bit…

    3. I’ll tell you why I put as much as I can in my 401(k):

      1. It’s easy. I don’t have to think about it. I do the same with Employee Stock Purchase, which isn’t restricted to after 62.5 years old.

      2. I don’t want to deal with the work of having tenants, etc – that would be a second (or third?) job. It might be lucrative but:

      3. I have an extremely low tolerance for risk. Like Cloud, I like to have a cushion. I can borrow against or withdraw my 401K for emergencies (knock on wood, not needed so far.)

      Yes, it will suck if I die before I can use that money. Then again, I’ll be dead, so it probably doesn’t matter. And my kids can use it for college 😀

      1. @ARC – We made a decision to sell our old condo in 2009, even knowing the housing market was at its bottom, in part because we didn’t want to deal with the hassle of renting it. Being a landlord is a great way to make money for some people, particularly those who are great at managing details (like Cara!) or who are particularly handy (one friend of mine is great at renovating apartments, and because he does all the work himself very well, nothing ever breaks — which saves a ton of headaches with tenants later). But if it’s not among your core competencies, and distracts you from your other job(s), it’s a less good way to make money.

    4. Age discrimination. Health problems. There are a lot of reasons we won’t all be able to work to 70 or past 70. Social Security alone is not going to grant me the life I am accustomed to living. (But there’s papers that show it is enough for folks who have been earning very little their entire lives.)
      ***
      Re: rental properties. On average they return about the same amount as the stock market. They are not completely passive-income and even with a management company take time and emotional energy. When I’m 70 I’d rather be drawing down from stocks than worrying about how the last tenants trashed the place. But rental properties are tax advantaged in some ways (depreciation etc.). If that’s what you want to do, go for it. Most people have the majority of their saving in their primary residence because that’s forced saving and they don’t put much money away anywhere else.
      ***
      Re: why 401K? Personally I like saving 25% with a traditional IRA) or more (with a Roth because taxes will be going up in the future) on my investment earnings.
      ***
      You don’t have to save for retirement, but the future is going to be expensive, and the social safety net is likely to erode more for us the longer we put off fixing Medicare (and to a lesser extent, Social Security).

  8. I’m sick and tired of the so called “income gap”. Men on average work longer hours and they do different jobs (not necessarily better). Basically, if Jill – who works eight hours a week at a receptionist job – doesn’t earn as much as Jack – who works 80 hours a week in a car factory – you women call this an “income gap”.

    1. Except there’s gender discrimination and unexplained wage differences even when all choice differences are controlled for. It does cut down the unexplained wage gap, but it does not eliminate it. (I think we’re somewhere around 10 cents on the dollar is not explained by choice differences these days.) Gender discrimination in hiring is real. Goldin and Rouse demonstrate it in their paper on moving to blind screening among musicians. Neumark et. al show it for waitstaff at high-end restaurants. I’m reading an interesting paper right now showing how forcing joint comparisons decreases gender discrimination in hiring compared to looking at resumes one at a time.
      ***
      Of course, there’s also research that shows that facts tend to cause people with discriminatory beliefs to double down on their disbelief of discrimination (or their belief of reverse discrimination… or their disbelief of climate change etc.). Kind of depressing for someone who does empirical research.

    2. @Voice Of Reason – I’ve written several times, on this blog and elsewhere, that differences in work hours are responsible for part of the wage gap. On average, women who work full-time log 5-10% fewer hours than equivalent men (according to the American Time Use Survey; different years have slightly different gaps, but it is in that range). The average woman has fewer years of tenure in the workforce, since they’re more likely to take time off. And there are certainly risk/danger premiums. You don’t see a whole lot of women miners or women working on oil rigs (though there are some, I’m sure!) As Nicole points out in another comment, taking into account these various factors leaves about 10% for a gap. Discrimination is probably part of that. I’m not sure how one takes into account the level of aggression on negotiating for raises, gunning for promotions, etc. That’s responsible for part of it too. Boys are more likely to grow up thinking that their family’s standard of living will be up to them, so they may place more of a premium on wages than other things (like flexibility). But this could be changing, too, since I’ve seen some evidence that younger men place more of a premium on flexibility, feeling like they’re doing good for the world, opportunities to work with teams, etc., than pure wages.

      1. I cannot remember the source, but I recall reading an article that attributed the key difference to negotiation in base/starting salary, which often serves as a base for things like raises, promotions, and other future opportunities. The idea was that men negotiate more much aggresively at the initial point of accepting an offer.

      2. Another factor is an “availability” premium. In IT, computer science, engineering and customer support, you are expected to be “on call” and able to respond immediately customer/client issues. This is also true in areas of law and high level finance, but the pay is better in those fields.

        I suspect that this “availability” premium is what keeps single moms out of better jobs- and married women out of jobs that require intermittent availability, unless they have family or a nanny to call on when both spouses are affected.

  9. I am a landlord (who uses a management company), and I still believe a 401(K) should be most people’s first savings/investing vehicle. The entry point for the 401(K) is immediate and much lower than for (additional?) home ownership. You can invest a small portion of your paycheck today (or within your company’s alloted window). By contrast, as a landlord, you will need time to save the downpayment, closing costs, and maintenance fees before you can even begin investing. (And where will you hold your money in the interim?) For the sake of argument, we can assume that you can buy a property that is likely to grow in value, which is not the case in every town.

    As for saving for when I am 70, I am fortunate that I do not feel as though I am particularly denying myself now. I hope to live well beyond 70, but if I don’t, well, I like the idea that my children can use the money in adulthood to smooth over the issues they may face.

  10. Boy, money really presses people’s buttons. 48 comments!

    I agree with all the comments here about priorities, accountabilty, smart frguality and disciplined saving combined with ability, education, and luck in your favor being the way to financial stability.

    20 years ago my husband and I bought our house. We moved in the day after our wedding and spent most of the next week tending to our new residence. House and wedding expenses left the bank accounts near zero but a quiet “honeymoon” close to home rather than an expensive one at a far flung destination allowed us to pay the bills that month instead of being in debt.

    That house is now home to our party of five. Thanks to pretty good employment luck, being frugal on items big and small, and smart money management we have a very comfortable cushion for ourselves and our children.

    I don’t think much about discrimination or the income gap. My income is a fraction of my husband’s because of my own choices. I certainly would never instill those thoughts into my daughter’s head. I want her to focus on working hard and making the most of her abilities. And hopefully a satisfying life will follow.

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