Smart Investing Advice for Women in Their 30s and 40s Who Want to Build Wealth Now

Peak earning years for women are in the late 30’s and early 40’s.  What you do with your money during this period will make a huge difference in your life going forward.  Lets see how to MAXIMIZE it….

According to a 2019 PayScale study, women reach their peak earnings at 44, earning on average $66,700. Men, meanwhile, reach their peak earnings at 55, earning on average $101,200. This disparity has a lasting impact on savings and retirement funds. On average, women have roughly 30% less in savings than men when it comes time to retire. This statistic is sobering, but it also serves as a call to action. Now is the time to take charge, make a difference, and bridge the gap.

How Much Should You Have Saved?

There are various metrics to determine how much you should have saved by age, and while there is no major consensus, there are some often used guidelines that are really useful as a check point.

Below are targets from two leaders in global investment management with personal investment platforms for individuals and corporate-backed 401(k) plans. Combined, they manage billions in assets and provide a wealth of metrics.  I suggest reviewing both and seeing if you are near range, within range, or ahead. 

FIDELITY SAVINGS GUIDELINES:

T ROWE PRICE – Savings Benchmarks by Age—As a Multiple of Income

If you’re ahead, that’s awesome! The advice below should push you further along. If you’re behind, don’t worry. There are always strategies you can employ to catch up.

Step 1: Ask for More

The most straightforward way to increase your savings is to ask for more. More money means more savings, higher 401(k) matches from your employer, and ultimately more security in retirement. Knowing your worth is the first step in asking for more.

Where to Start:

• Utilize free online resources like Glassdoor, PayScale, and Salary.com.
• Ask friends, colleagues, or mentors about their salaries.
• Compile your recent wins, projects, and achievements to bolster your value.

We often expect bosses and colleagues to inherently know our worth, but no matter how good they are or how well intentioned, it just isn’t always the case. It is absolutely essential to remind them. Once you have a baseline, ask for more. If not immediately, set the groundwork for negotiating a raise over the next 6, 9, or 12 months, or with certain key performance indicators (KPIs). There is no one-size-fits-all solution, but there is always a solution if you feel you deserve more.

Step 2: Maximize Retirement Contributions

Use your 401(k) to the maximum extent possible. Whatever your company matches should be your bare-minimum threshold. Ideally, you should be maxing out your contribution amount. The IRS changes the amount you can contribute tax-free each year. Check the IRS.gov website for current limits.

For those 50+, there is a higher limit under “catch-up” rules, allowing you to contribute significantly more tax-free. This strategy reduces your taxable income during peak earning years, potentially lowering your tax rate in retirement.

Most experts recommend balancing tax-free and taxable savings. This approach provides flexibility and tax benefits at different life stages.

Step 3: Minimize Debt and Interest Payments

Debt in America is out of control, and women bear a heavier burden. While total debt is roughly equivalent between genders, it is higher as a percentage of income for women. Women carry 66% of the total student loan debt in the USA.

Now is the time to clean up your financials. Prioritize paying down high-interest debt like credit cards. Approximately 10% of women aged 35-54 have more than $7,500 in credit card debt. With average interest rates at 15%, carrying that balance costs over $1,100 per year in interest alone.

Debt Action Plan:

• Pay down high-interest debt first.
• Manage credit cards by paying off the balance each month.
• Reduce costs on other loans, such as mortgages and car loans.

Remember, America was founded on life, liberty, and the pursuit of happiness. Are you truly free with debt hanging over your head? For many, the answer is no.

Step 5: Update Your Retirement Account Investments

Often, we “set it and forget it” with our retirement and 401(k) accounts. But do you have a strategy for the investments inside your company-backed plans? Do you know all the options available?

Common Investment Options:

• Target Date Funds: These mutual funds have predetermined investment mixes based on your target retirement date. They start with growth stock mutual funds and become more conservative as you approach retirement. While convenient, they may not always offer the best returns.
• Mutual Funds: Professionally managed investments that allow investors to pool their money to invest in numerous companies. They offer diversification but can come with high management costs.
• Index Funds: These funds follow market benchmarks, like the S&P 500, and are inexpensive to manage. Warren Buffet recommends them for their simplicity and low costs.

Research and make informed decisions about your retirement investments. Diversification is essential, but so is ensuring your money grows.

Investing Beyond Your 401(k)

Once you’ve maxed out your 401(k) contributions, consider other investment options:

• Health Savings Account (HSA): An HSA is a tax-free savings account for medical care that accompanies a high-deductible health plan. Maximize contributions while employed, as it becomes harder after retirement.
• Roth IRA: Allows after-tax contributions with tax-free withdrawals in retirement. It has a low annual contribution limit and an income cap.
• Traditional IRA: Similar to a 401(k) with pre-tax contributions and tax-deferred growth. It also has a low contribution limit for high earners.
• Individual Brokerage Account: An account where you can buy and sell securities independently. You can often link it to your 401(k) for a unified view of your investments.
• Independent, Private Investments: High-net-worth individuals often invest in private investments like real estate, hedge funds, and venture capital.
• Employee Stock Purchase Plans (ESPP): Allows employees to buy company stock at a discount, usually 15-20% off the market price. This can offer significant financial gains but also poses risks if heavily weighted in one company.

Final Thoughts

If you are in your 30’s or 40’s and feel behind, don’t worry.  You are just entering their peak earning years.  Its never too late to start.  Start by maximizing your income and ASK FOR MORE.  Already on your way?  Use this momentum to double down with this investing advice.

33% of millionaires in the US are women. Why not you?

The more we know, the more we grow. The more we talk about money, the more money we make.

Other resources:

1. https://www.debt.org/faqs/americans-in-debt/demographics/
2. https://www.fool.com/research/women-in-investing-research/

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