Every third woman in Germany is heading towards poverty in old age. On the occasion of International Women’s Day, the financial experts from the “finmarie” coaching platform explain why this is and what we can do about it. A Focus Online guest post.
For many women, retirement will not be enough. We must face the naked truth. The Federal Ministry of Labor will publish statistics on request in 2023: Even after 40 years of work, every third woman in Germany is entitled to a net pension of less than 1,000 euros. In plain language, this means that 2.7 million women or 38 percent will be affected by poverty in old age.
A problem that will not solve itself. The facts are well known in politics: Dietmar Bartsch (Die Linke) speaks of a “disrespect for women” and sees “catastrophic figures” that urgently require an “update” of the German pension system. However, women should not rely on potential government reforms. What can we do ourselves? To do this, we must first clarify what the problem is based on.
Women pay less into the pension fund
In Germany we have a gender-specific pension gap of 46 percent (as of 2021). This is very high in an international comparison.
One of the reasons is the here and now. Women often earn less than men, and accordingly pay less into the pension fund. In old age, there is often not enough money left for security. The so-called gender pay gap is 18 percent and is therefore mainly responsible for the pension gap. The fact that women are paid less than men naturally adds up after 40 years of work.
Can we now say that the gender pay gap is to blame for the fact that poverty in old age is predominantly female? On closer inspection, there are other factors that are actually pretty obvious.
Reasons for poverty among women in old age
- Very simple – the life expectancy of women is higher than that of men. As a result, women have to make do with their low pension and savings for five years longer on average. That’s half a decade more for rent, clothing, food, utilities, vacations, medical care, and so on.
- Women often work without pay: Housework, raising children or caring for relatives are still not included when it comes to the pension notice. The numbers speak for themselves – women between the ages of 18 and 64 take on 2.4 times as much time for unpaid care work as men.
- Although these points are part of the everyday life of many women, they still tend to care less about their own security. This is fatal. We shouldn’t rely on the state pension, but urgently protect ourselves. Many feel insecure in the financial market. Understandable. The topic of investment is still very much geared towards men. It is therefore important to create sufficient space in which women can tackle their finances without hesitation or inhibitions.
Yes, that’s right – women in particular should be concerned about their pensions. But do we simply have to accept poverty in old age, or can we actively counteract it?
We understand when the current situation stirs up fears. That’s no reason to stick your head in the sand, though. We only harm ourselves by doing so. Breaking old role models and taking the future into our own hands is the motto.
Three tips to get you started in the fight against poverty in old age
1. Create a budget
Before you start, you need to prepare. If you’re not investing yet, make a budget, write down all your income and expenses, and see where you might be able to save something. We recommend investing 15 percent of your net salary in your retirement provision.
2. Get professional support
Of course there are as many ways to invest as there are sand on the sea. To find the right path for you, financial advice or coaching can be helpful. Here you can find out what your risk profile is – i.e. whether you live according to the motto “no risk, no fun” or panic quickly if the market collapses briefly, such as in 2022. After that, you should align your investment strategy. Of course, there is no shame in playing it safe. In that case, it is very unlikely that a portfolio with a focus on equities would be an option, but rather a portfolio with a focus on bonds.
3. Don’t start with cryptos, but with ETFs
If you still prefer to go it alone and are inexperienced, then don’t let the hype about cryptocurrencies blind you. This investment is very volatile and you can lose a lot of money investing. Not a good prerequisite for securing yourself for your pension. So-called Exchange Traded Funds (ETFs for short), on the other hand, are also well suited for beginners. You can imagine an ETF as a kind of basket in which there are many individual investments – for example shares in different companies. They’re a great way to build a well-diversified portfolio with little effort. An additional plus: In contrast to actively managed funds, they are significantly cheaper because no fund manager has to be paid.
Female poverty in old age is not a fairy tale
So you see the problem female poverty in old age is not a fairy tale. It is a threat to many women and that is precisely why it is important to “act as early as possible”. Don’t be fooled into thinking that your retirement is still a long way off and that we don’t know what will happen to our world in the next few decades anyway. The art of investing is staying power. This means that the sooner we start putting our money into investments, the more we benefit from compound interest. In short, we get interest on our interest, which can pay off quite a bit over the years. So there is still a chance to counteract poverty in old age – if we take care of ourselves, secure our private financial security and let the time work for us.
finmarie was founded in Berlin in 2018 as one of the first financial providers of this kind in Europe specifically geared towards women. The founders Karolina Decker, Rica Klitzke and Leitha Matz want to empower women to make smart financial decisions themselves and make the financial market more transparent and accessible overall. In addition to classic financial coaching, the offer also includes the Investment Academy, an 8-week program that helps the participants to transform their finances like a kind of step-by-step guide – from teaching the basics to the first investment.
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