The Retirement Gender Gap
In recent years, there have been many articles published on how Americans are failing to save enough for retirement or how we are starting to save too late for retirement. Both issues can end with the same result: running out of funds in your retirement years. This would be a terrible reality to face, but the facts are even more disheartening for women. According to the National Institute on Retirement Security, women are 80% more likely than men to be impoverished at age 65 and older.
Reasons for the Retirement Gap
As a woman, I was shocked to read this. I would hate to think that any of the strong, smart women that surround me might eventually fall into this statistic. Nevertheless, we need to face the fact that when it comes to women and retirement, there are underlying realities that make a comfortable retirement more difficult:
The Wage Gap
This has been a popular topic in recent years as light has been shone on it in national debates, articles, and by celebrities. While efforts have been made to close the gap, the fact is that, on average, women still make less than men. A 2016 Senate Joint Economic Committee report found that women, on average, earn 21% less than men. This is then reflected in dollars saved. Even if men and women save the same percentage of their pay, men will save more on an absolute dollar basis. The difference is then further exacerbated over time with the effects of compounding growth.
Women Live Longer
From a biological basis, it is highly likely that on average, a woman will outlive a man. This means not only do women need to save a higher percentage of their paycheck to match the absolute dollars saved by men, but women need to save even more to support their extra years of retirement. Additionally, healthcare costs are more expensive for older women and (of course) you’ll need it for more years. With rising premiums and healthcare costs outpacing inflation, social security isn’t being adjusted enough to cover these increased expenses.
Career Concessions
Numerous women make sacrifices in their professional life to support their families at home. This comes in many forms, such as turning down promotions, decreasing their hours, and working part-time (which may affect participation in employer retirement plans), or taking a few gap years to care for young children or aging parents. These sacrifices often result in fewer working years, less general savings, and fewer contributions towards social security (resulting in lower lifetime benefits).
Confidence
Women are often less confident in their financial knowledge and skill than men are (not to say that women actually know less, they just feel less confident). As a result, women can end up being more risk-averse than men. They invest less aggressively than they should for the long-term, resulting in smaller retirement portfolios. Also, women generally talk to each other less about finances than men do and are less involved in their own retirement plans. Coupled with the fact that women are underrepresented in the financial industry, finances can often seem like a mysterious black box.
How to Close the Gap
It may appear like the cards are stacked against women in retirement, but they don’t have to be. Being aware of these possible realities is the first step in setting an achievable plan for the retirement that you envision. So, what can you do?
Start planning for your financial future now.
Set small short-term goals and long-term goals to help keep you focused, disciplined, and on track. Or, if you think you need professional help, hire a planner to look at your unique situation and help assess where you stand relative to your goals. They may be able to provide helpful notes to get you to where you want to be. Having someone to keep you accountable will go a long way.
Cut down on excess and frivolous spending so you can save more and save earlier.
There cannot be enough said about the power of compounding growth.
Increase contributions to a qualified retirement plan (and max it out if possible).
Qualified retirement plans are often capped, and if you wait only until later years to max out your contributions, you will be missing out on current years of contributions (and compounding growth) that you won’t be able to get back.
Pay off debts.
Do you have outstanding school loans, car payments, or credit card debt? Come up with a plan to pay these off so you aren’t throwing money away on interest.
Push off taking social security until later.
When you turn 62, you have the option to start receiving social security. However, if you choose to start collecting at this age, you will receive a discounted monthly amount (as much as 25% to 30% less than if you had waited until your full retirement age of 66 to 67). If you delay receiving your benefits until after your full retirement age, you can increase the amount you receive (for example, receiving an 8% increase each year that you postpone your benefits until you reach the age of 70). Since women have a higher likelihood of living longer, the increased benefits can make a meaningful impact on your financial situation.
Educate yourself.
There are many great resources on personal finance and investing that you can tap into. It reasons that when you educate yourself, you will make better and more appropriate decisions for your financial future and will feel more confident in those decisions.
Contact Us if You Need Any Help Being Prepared
We know that it’s impossible to plan for all obstacles in retirement, but we hope that as women become more financially educated and truly understand their future financial needs, they will be more prepared for retirement and the statistics will reflect that change. If you have any questions or think we can assist you in any way, please don’t hesitate to reach out.
