woman holding a golden egg

How Moms Can Beat the Retirement Odds

Why financial education is the key to helping moms live a full retirement

“Setting up a retirement plan, and sticking to it, is a Mother’s Day gift that will last a lifetime.” So says Penelope Wang writing for Money magazine.

This last weekend, we celebrated Mother’s Day. It’s always interesting to see how writers will take a day like that and use it to their advantage. (I’m one to talk! See “ Busting the Success Myths of Motherhood ”.)

In this instance, Wang makes the case for skipping the flowers and brunch this year to take a look at mom’s retirement plan. “Granted, 401(k)s are nobody’s first-choice topic on Mother’s Day. But it’s a discussion you don’t want to put off too long,” she writes.

Why?

Because as Wang points out:

- Moms earn less

- They thus save less for retirement

- And they get less social security because they work less

- But they live longer than men

- So they have higher rates of poverty in retirement

All of these things are true. And they’re all scary realities for the financial fate of women in the US. But is a 401(k) really the answer to this problem—especially when you have to check in to make sure your mom has one?

Odds are that if you’re at the point where you have to spend Mother’s Day helping your mom think through her retirement, the 401(k) is too little too late.

The financial myth that, “Even if you have only small amounts to put away right now, those dollars will grow over time,” is generic advice that sounds great on paper but is a disaster in practice.

Assuming the average adult in their 30’s is finally mature enough to start thinking about his or her mom’s retirement, that would put the lady in question at around 50 to 60 years old. At that point, if you haven’t been saving and investing for some time in a 401(k), starting now isn’t going to help much come retirement time. Between the fees and inflation, she’d have to be socking a lot of money away each month to make a dent. It’s hard enough to be ready for retirement when you invest in a 401(k) most of your life, let alone towards the back half of it.

No, mom doesn’t need you to start a 401(k) on Mother’s Day. What she needs is to understand that the old way of thinking about money won’t work for her…or her retirement.

Savers are losers

One of the phrases you’ll often hear Robert say is “Savers are losers.” This statement can come as a surprise to people who have always been told that saving their money is the smart thing to do.

This brings up an important distinction between saving money in the short term and then moving that money into a sound investment, versus saving for the long term and investing in supposedly “safe” investments like mutual funds, bonds, CDs, or just cash in a savings account—i.e., 401(k)s.

I say “supposedly safe” because the types of long-term investments listed above are not really safer than any other investment, they are just easier. They require less financial education but carry the risk that comes from having almost no control over your investment. They also don’t give very good returns compared to more hands-on investments like real estate or owning a business.

When mom saves her money in a 401(k), she’s at a huge investing disadvantage—low returns and no control. There’s got to be a better way for mom, right?

Investors are winners

Wise investors save for the short term, then use that money to buy investments that bring in regular cash flow—and mom should too. The beauty of cash flow is that 1) it keeps coming in continually (assuming the asset is managed well) so you don’t have to worry about it running out, and 2) you can raise prices (like the rent on your real estate or the price of your business’s products), which means your cash flow income keeps pace with inflation.

Mom needs financial education

To invest in ways that bring you good returns and reliable cash flow, the first step is to become financially educated enough to find, buy, and manage good investments. If you neglect your financial education, your options are limited to investments where you have little control and could be left in the cold in your retirement years.

Since I believe in living abundantly, I’ll say that not only should you get mom those flowers and brunch each Mother’s Day, but you should also give her the gift of financial education so she can grow her money and have it work for her!

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