Top Tips to Help Women Achieve Financial Independence

Salary is about a lot more than the income you’ll have today. It becomes the anchor for future raises. For example, if your employer matches your contributions to a workplace retirement plan, it affects how big that match will be. Today’s salary also will play a role in how big your Social Security benefit will be. Eligible for a pension? Salary is also used to calculate that benefit.

Fixing the gender pay gap ultimately requires employers to change what they are doing that allows it to exist in the first place. But it’s also important to learn to negotiate your salary.

An academic research experiment reported that 1 in 3 women took the first offer rather than negotiate. While negotiating might backfire (13% of women in this experiment ended with a lower wage), the odds are that you are your own best advocate, as nearly 3 in 4 women who negotiated landed a better deal.⁴

However, in the same experiment, the participants who were forced to negotiate were more likely to end up with a lower wage than those who chose to negotiate. The key seems to be to negotiate when you have a strong case and can present that authentically. There are online resources for how to build a fact-based case for getting paid more. There are also online workshops, and coaches who can help boost your negotiating confidence.

It isn’t just about the lost salary; taking time off to raise a family or care for a loved one typically means a smaller rise in wage growth over a career, as well as reducing future retirement income. A free online interactive tool from the Center for American Progress provides an estimate of the financial hit from taking time off that takes your age and current salary into account.⁵ For instance, a 30-year-old earning $65,000 a year today who plans to take off two years beginning at age 32 is estimated to lose a total of $370,000 in career earnings and retirement benefits.

If you have a partner, thinking through the long-term cost of time off might open a conversation about sharing caregiving in a way that does not necessitate anyone making a full-time exit from a job. If you’re in a family planning stage, maybe consider seeking out employers that provide the most generous care benefits. An employer comfortable with work-from-home or hybrid work might also be a solution, as the cost of care while you’ve got your home office door shut is likely to be less than walking away from a job completely.

Life expectancy is one of those stats you’ve surely run into, but maybe you haven’t fully appreciated its message.

According to estimates from the Society of Actuaries’ Longevity Illustrator, a 65-year-old woman in average health today has a life expectancy to age 88.⁶ Life expectancy is just an average; in this example, it means that half of all 65-year-old women will be deceased by age 88, but half will still be very much alive. (Average life expectancy for men is about three years less.)

In terms of maintaining financial independence through retirement, ideally it’s the 50% probability of living past 88 that you want to plan for, if possible – just to be on the safe side. Yet a survey found that more than 60% of women underestimate their life expectancy by at least five years.⁷

Some steps you can take today to help your future-self maintain financial independence:

Save as much as you can for retirement. Now that you’ve got a clear-eyed understanding of longevity probabilities, consider upping your savings in a workplace plan, such as a 401(k), or in your Individual Retirement Account (IRA). If you’re married and not working (for a salary, that is), you are eligible for a Spousal IRA, as long as your partner has earned income. For 2022, that’s another $6,000 your household can tuck away for retirement if you are younger than age 50. The limit is $7,000 if you are at least 50 years old.

Invest for an older you. Bank savings and checking accounts can be a great place to stash money to pay today’s bills and cover unexpected expenses. But those accounts are not ideal for long-term retirement savings, as they typically don’t pay enough interest to offset inflation. That’s where investing in stocks becomes crucial. Over long periods, stocks have provided the best inflation-beating returns.

Plan for the benefit of the surviving spouse. If you are married, all retirement planning decisions should be made with an eye toward ensuring the financial independence of the surviving spouse. That’s typically wives, given their longer life expectancy and the fact that many women marry men who are older.⁸

For example, when a spouse dies, the survivor is allowed to collect just one Social Security benefit, not both. To ensure that the surviving spouse has the largest possible benefit, experts typically recommend that the highest earner aim to wait until age 70 to start collecting payments.⁹ (Social Security pays reduced benefits beginning at age 62. If you wait until age 70 to start collecting, your benefit could be more than 75% higher than if you start at age 62.)

If your household will also benefit from a pension and that money is needed to pay for essential living costs, you will want to carefully choose a payout option that will ensure that the surviving spouse can remain financially independent.