Women and Savings: What to Do at Your Life Stage

The recession has pushed almost all of us, regardless of age, a decade behind in building personal wealth. Don’t beat yourself up if you’re in your 20s and haven’t paid off student loans, or in your late 30s or early 40s and still paying off debt or saving up for a down payment. If your retirement account isn’t where you’d like it to be in your 50s, do the best you can to build it up. What matters is doing the best you can to make sound financial decisions so you can enjoy the important things in life without worrying too much about money. Here are few tips for women in their 20s, 30s, 40s, and 50s on saving and building wealth. (See also: 37 Savings Changes You Can Make Today)

In Your 20s

I can’t stress this enough — start saving early. Even if you think you’re broke, give up lattes twice a week and put the $25 a month you save into a retirement account. The hilarious truth of the matter is that the earlier you start saving, when you can least afford it, the harder that money works for you to earn interest. Investing just 5% of a $40,000 salary annually from age 25-65 can pay off big in the long run. Assuming a 6% rate of return, at age 65 you’d have $479,241 in your 401(k) thanks to the magic of compound interest. Invest 10% of a $40,000 salary, and that number grows to $830,678 by age 65.

On to credit card debt, especially important in your 20s. I know about this one first hand. I thought I had a great handle on my credit card spending in my early 20s. So great, in fact, that over the next several years I didn’t bat an eyelash at charging multiple plane tickets to Europe, rounds of drinks with friends, and several pairs of new shoes.

Several years later, I was still paying it off.  The only way I dug myself out of debt was to get a second job in addition to my full time job while I was finishing school. That meant a 60-plus hour work week, no social life, no excess spending, little sleep, and a lot of headaches for over a year. Trust me, you do NOT want to put yourself through the stress that excess debt causes. Before you whip out the credit card to travel or go out or buy a new gadget, ask yourself if you really need it. Force yourself to spend responsibly. If you want to travel, set aside 10% of your earnings and take one great trip a year.

In Your 30s

In your 30s, the traditional wisdom says you should be buying a house, saving up for a family, and finally paying off your student loans and credit card debts. Realistically, with the low pulse of the housing and job markets, many people are delaying purchasing property or starting a family. So if you’re still working on paying down debt and building up savings, that’s okay. Don’t beat yourself up; just continue to save.

Still, your 30s do represent a transition into being a “real” adult, and along with that comes responsibility, like it or not. Aim on building a savings account with three to six months’ worth of living expenses. Try to finish paying off high interest debt, like credit cards and car loans. If you do decide to buy property, add up all the costs of ownership before making a commitment.

In Your 40s

Most women in their 40s seem to have a good handle on the concept that managing your money well leads to more freedom down the road. At this point, most women are probably mid-career and earning more than they did in previous decades. Whether you’re a single-income or dual-income household, use the peak earning years to your advantage. Pay down all the debt you can, ramp up retirement contributions and review your savings goals on a regular basis. Remember, not all workers are lucky enough to have a company pension plan, and who knows what the future holds for social security. Once your emergency fund is built, use extra cash to build up retirement savings.

In Your 50s and Beyond

Women live longer than men, over five years on average, which means we should be saving more for retirement, not less. A Wells Fargo survey on women and retirement found that 30% of women aged 40 to 69 “weren’t sure” or “couldn’t estimate” how much they’d need in retirement. Well, let’s knock that excuse out first. Here’s a great calculator from Bankrate to estimate how much income your retirement savings will generate.

If you’re in your 50s and 60s and your retirement income isn’t what it should be, you’ll need to ramp up saving to meet your estimated expenses. Make sure you don’t make risky or aggressive investments during this time period, as the goal is to safely build wealth for upcoming retirement.

Some people might want to have a part-time job during “retirement,” so take that into consideration as well. If you do decide to exit the work force, consider what expenses you’ll have in retirement. Will you have a mortgage or car payment? Do you plan on traveling? What about healthcare costs? Keeping a handle on how much you’ll need to live on can prevent unpleasant surprises down the road. 

This post is a part of Women's Money Week 2012. For more posts about saving, see womensmoneyweek.com.

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Guest's picture

In my 20s, I became debt free, bought a place, started saving for retirement and college for my kids, and investing. Money is a huge stress in people's lives, and I'm glad that I am ahead of the game.

Erin C. O'Neil's picture

That's awesome Shevonne, way to go...

Guest's picture

It's scary to know that, right now, consumers into their 50's and even 60's are still paying back student loan debt. That's what we found looking at our latest Credit Karma debt numbers. And now that student loan debt is higher than ever, who knows how old we'll be when we finally pay it off? Thanks for these great tips, though. It's nice to be reminded to save, even if it's only a little to start.

Erin C. O'Neil's picture

Bethy, it really is amazing. I have friends who went to law school or business school that have loan payments higher than their mortgage. I think the last study I saw said the average student loan debt upon graduation has topped $25k. Hopefully the new reform laws can help people out.

Guest's picture

I am on my late 30s already but I am trying to pay off all our debts as early as now. We are already down with two and paying off our bank loan, which is the only debt left. We are looking forward to be debt-free before the second quarter ends. Why wait to be 40 if we can do it now?

Erin C. O'Neil's picture

Good work Cherleen...it can sometimes feel like an uphill battle, but sticking with it is key. What a great feeling, congratulations on being so close to debt-free!

Guest's picture

Great post! Any reason saving up an emergency fund isn't early in the 20's stage? I feel like in your 20's the most minor hiccup (car emergency etc.) can set us back so having at least $1,000 in cash - even before retirement savings - is one of the most important financial decisions someone in their 20's could make. Just curious!

Erin C. O'Neil's picture

Hi Guest - Thanks, glad you liked it. To be brutally honest, there are two reasons I left off "create an emergency fund". The first is that almost every personal finance guru talks about them nonstop, so I assume most readers are savvy enough to know saving up some cash is important. The second is that if I went into detail on everything you should do to prepare financially, I'd end up with a blog post the size of a David Foster Wallace novel.

Basically, what I meant to impart (and hope I did) is how high interest credit card debt can take its toll on your budget years later if you don't pay it off as quickly as possible - or better yet, avoid it all together.

Guest's picture

I'm not a woman, but i did find this post useful. In the statement, "Assuming a 6% rate of return, at age 65 you’d have $479,241 " is harder to obtain these days based on historical investments. What's the best way of hedging your investment vs. inflation so that you could earn that 6% return would you say in today's world?

Dwight Anthony
Financially Elite Blog dot Com

Erin C. O'Neil's picture

Hey Dwight - The 6% rate of return refers to retirement accounts or a 401k plan. If it's an employer sponsored plan, people will be limited to what the employer offers in terms of investments.

That being said, there's usually a decent group of items to pick from. Most large scale plans offer large/mid/small cap mutual funds, a selection of international and bond funds, and ETFs. There are also "target retirement funds", mutual funds which balance their portfolio based on retirement age, and they actually tend to perform really well. For example, the Vanguard Retirement 2045 fund (VTIVX) has an average annual return of 12.9% over a 3 year period and 10.64% for a one year period. The most recent rate of inflation was reported at 2.9% in January of 2012. So given the numbers, it's definitely possible to net a 6% return.

Really good point.. And that's why I'm such a proponent of Vanguard's Retirement Funds (there are many more great target funds, too, but that's one I have experience with in my past life at a brokerage house) - they take a lot of the guesswork out of investing but still allow people to earn a return far better than the dismal CD and bond return rates.

Guest's picture

great post! thanks for the helpful advice, always a good reminder.

Guest's picture

When I was an undergrad., I took a part time job and graduated debt free. I am now back in school for my graduate degree. I opened a high yield savings account and started saving. I also opened a Roth IRA account for retirement and I recently opened up a brokerage account for investing. I am now 22.. (:

Charlotte @