Closing the Gender Gap in Retirement Savings
Saving enough for retirement isn’t easy for anyone. For women, however, demographic trends can make it particularly challenging. Why is this so, and what can women (and their families) do to help protect their future standard of living?
Longer Life Expectancy
The average woman can expect to live more than five years longer than the average man.1 That means the average woman’s retirement savings must provide five extra years of income during retirement. Put another way, the average woman might need a nest egg that’s about 25% bigger than the average man’s - a significant difference.
Reassess your retirement savings goals. Taking into consideration the special challenges women face in retirement, are you saving enough? Your nest egg may need to be larger than you thought.
Over 65 and Single
Another consequence of women having a longer life expectancy than men is that women are more likely to find themselves single at some point during retirement. Typically, men bring in more pension and Social Security income than women. So, losing a spouse can dramatically cut household income for older women. Among Americans age 65 and older, 12% of women are living in poverty; for women living alone, the poverty rate jumps to over 20%. By way of comparison, in the same age group just 8% of men (married or single) are living in poverty.2
Save as much as you can, as soon as you can. The power of compounding - when previous earnings from an investment remain invested - can help your assets grow significantly over time. Don’t put off retirement savings for "later."
Lower Average Earnings
Generally speaking, women earn less than men - on average, 77 cents on the dollar. 2 Lower earnings can make it harder for women to fit savings into their current budget, so it is more difficult to accumulate sufficient assets for retirement. Lower earnings mean lower retirement plan contributions and, ultimately, lower Social Security payments. For example, in 2003, the average monthly Social Security benefit for men was $1,039; for women, just $798.3
Put extra effort into saving during periods of paid employment. Take maximum advantage of your employer-sponsored retirement plan during your working years. This is particularly important if you anticipate being out of the workforce at some point while caring for children, a spouse, or elderly parents.
Careers, Interrupted
Compounding the difficulties caused by lower average earnings is the fact that, due to family caregiving responsibilities, many women spend years out of the full-time paid workforce. Often, child-rearing and elder-care years coincide with what would be a woman’s mid-career, prime earnings period. The effects of missing these years of paid employment can be devastating. One recent study of total earnings over time found that over a 15-year period the average woman earned 62% less than the average man.4
Fund an IRA for the family caregiver. If you or your spouse isn’t currently employed, the income-earner can still make a spousal IRA contribution on his or her behalf - up to $4,000 in 2006 ($5,000 for those age 50 and over). The tax advantages of a Traditional or Roth IRA can be a powerful way to grow retirement savings.
Knowledge Is Power
Although these general trends present formidable obstacles for many women, there are steps women - and their families - can take to better prepare themselves for retirement. Now that you’re aware of the potential difficulties, you can make a more realistic plan for savings success.
Review your investment strategy with a professional. If you’re concerned you won’t be able to save enough, you can at least make sure you’re seeking enough growth from the assets you do have. A financial advisor can help you find investments that are appropriate for your needs and goals.
When all is said and done, having enough assets for a comfortable retirement is the common goal for both men and women. It may just take a little extra planning for women to reach it.
