When it comes to financial planning, women are likely to face different challenges than men. For one, they earn less than men on average, and they’re more likely to work part-time jobs or take time away from their careers to raise children and care for family. Time off and lower lifetime income means women face unique financial planning challenges.
Here’s a look at some common financial issues women face and strategies to address them.
Less income means less money to devote to savings
On average, women earn just $0.74 on the dollar compared to men, leaving them with less money available to pursue financial goals, like saving for retirement.
Contribute as much as you can to a retirement savings account, like a registered retirement savings plan (RRSP) or a tax-free savings account (TFSA). The tax advantages of these accounts can help boost your savings potential. In 2021, you can contribute up to 18% of your income or $27,830, whichever is less, to an RRSP. Withdrawals from RRSP accounts are taxed as regular income and you must start taking them in the year you turn 72. For 2021, the TFSA contribution limit is $6,000. You can make withdrawals from TFSA accounts tax-free at any time, for any reason.
Potentially lower pension benefits
Canada Pension Plan (CPP) benefits are calculated based on average earnings throughout your working years. Because women earn less, they tend to have smaller benefits than their male counterparts, but there are some programs in place to help mitigate these challenges.
If you have periods of low or no salary, the government will exclude up to eight years of your lowest wages when calculating your pension amount, which will increase the size of your benefits. The child-rearing provisions in place can also help increase your pension benefits. When calculating your benefit amount, the government won’t include months in which you had low or no income and were raising children under the age of 7.
Caring for family members
Women, in general, tend to do more care work for other people than men do, including caring for children, aging parents, spouses, and grandkids. This work isn’t compensated and can mean women aren’t able to participate fully in the workforce. Even when they do, working mothers’ earnings are depressed for up to five years after childbirth.
If you need to step out of the workforce to care for a family member, you may be eligible for caregiving benefits of up to 55% of your earnings or a maximum of $595 a week, which can help support you financially while you’re caring for others.
Women live longer on average than men, meaning they need to ensure they have enough savings to cover more years’ worth of retirement expenses. The average life expectancy for a man in Canada is about 80 years, while the average life expectancy for a woman in Canada is about 84 years. Longer life expectancy is another reason to save aggressively in tax-advantaged retirement accounts if possible.
Rising health care costs can complicate matters, as health care needs may increase with age. Plan ahead for long-term care costs. Consider purchasing long-term care insurance, which covers the cost of assistance with activities of daily living, such as bathing, dressing, or eating. It can also cover the cost of custodial care in a nursing home or assisted living facility.
Women face unique challenges in financial planning and saving for retirement, but making the most of these strategies can help you meet those challenges and take control of your financial future.