8 Steps Women Need To Take To Close the Retirement Gap
Women typically retire with 34% less in retirement savings than men and they live six to eight years longer on average — so they actually require more savings than their male counterparts. As for why women are retiring with less in savings, there are a number of reasons, but perhaps the biggest factor is that women often take on caregiving duties throughout their working years.
“Women are typically responsible for the children, aging parents or both,” said Amy Ouellette, SVP of retirement services at Vestwell. “This can have a profound impact on one’s ability to advance their careers, salary increases and additional contributions to their retirement plans.” In today’s “Financially Savvy Female” column, we’re chatting with Ouellette about how women can account for these gaps in income and close the retirement gap.
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Be Cognizant of Your Spending vs. Saving Ratio
To ensure you have enough savings to retire, it’s time to take a good hard look at how much you are spending versus how much you are saving.
“While it feels natural to equate the gender pay gap with retirement insecurity for women, the majority of individuals in the United States, regardless of gender, are not saving enough for retirement,” Ouellette said. “In fact, the issue at hand is actually an income to spending versus savings ratio problem. It’s critical for all individuals to be cognizant of their spending habits and the amount they’re setting aside for both short-term and long-term savings. The consistent goal is to always live within a certain percentage of your income, which is unique to each individual. Likewise, each individual should have a retirement goal in mind. Having these numbers in place will help guide your savings plan.”
As a general rule, women should aim to save 10% to 15% of their income for retirement. If you are not currently doing this, it may be time to reevaluate how you are allocating your funds.
“Take a critical look at your expenses and determine areas in which you can pull back and redirect your allocations toward retirement,” Ouellette said. “High rent? New car? Starbucks coffee every day? These are often nice-to-haves now; however, they are large sums that consistently eat into your ability to save for the future.”
Don’t Wait To Start Saving for Retirement
If you are still early in your career, you may not feel a need to begin saving for retirement. But you should start putting away funds for the future ASAP.
“Due to the nature of retirement savings and compound interest, this is time to save as much and as often as possible,” Ouellette said. “Starting early can save you hundreds of thousands of dollars.”
Save for retirement in an IRA, or if it’s available to you, take advantage of your employer-sponsored retirement savings plan.
“Make sure to check if there is a plan available for you at your company and if there are any matches available,” Ouellette said. “If you do have access to an employer matching program, make sure you’re getting the full match for which you’re eligible.”
Prioritize Your Retirement Over Paying for Your Children’s Education
Setting aside money for your kids’ education may be a high priority for you, but it should come second to saving for retirement, Ouellette said.
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“It’s no secret that women often put their children’s well-being ahead of themselves,” she said. “What does this look like in terms of savings? Women might elect to put money aside for their children’s education before they put money into their retirement accounts. It’s my personal belief that if you want to do right by your children, take care of yourself first. When considering where to allocate funds, remember that there are ways to borrow for education if needed; however, the same cannot be done for retirement.”
Look For Alternative Ways To Pay For the Care of Aging Parents
“On the other end of the spectrum, women are often faced with caring for their aging parents in addition to their children,” Ouellette said. “If a woman is allocating funds away from her retirement to care for everyone else in the household, it can lead to putting her own financial future at risk. As difficult as it may sound, it’s important for parents to live off of their own retirement savings and, if needed, explore public-funded support systems such as Medicare. By doing so, it helps break the cycle of financial strain on the next generation.”
Take Your Longevity Into Account
The average life expectancy for women is roughly 81 years old, so be sure you take this into account when creating your retirement plan.
“Many studies have shown women outlive men for a variety of health-related factors,” Ouellette said. “It’s important for women to consider this when they develop their retirement plan and determine how much to put aside each month. By living longer, there will be more standard expenses such as rent, mortgage, food, etc., along with the likelihood of more expenses around medical care. It can also be helpful to look at family medical history to help predict some of the additional medical costs in the future.”
Meet With a Financial Advisor To Ensure You Are Staying on Track
Once you have a goal in mind, you need to make sure you are staying on the path to achieve this goal. This is especially vital to do when you are at the mid-career point in your life.
“This is the time to step back and reevaluate,” Ouellette said. “Take a deeper dive into seeing if you’re on track to meeting your retirement goals. Mid-career professionals should engage a fee-only financial advisor. These advisors guide you through a personalized plan, rather than relying on generalized ratios and goals.”
Increase Your Savings Contributions
“As women advance their careers, they should also increase their savings,” Ouellette said. “A general rule of thumb is any time you get an increase in pay, you should also increase your savings rate.”
Build a Strong Network
How much you earn will translate into how much you save for retirement, so it’s important to always look for ways to advance in your career. Networking can be an invaluable tool for finding new, better-paying work opportunities.
“Look for women’s groups and networks in your industry,” Ouellette said. “To me, the best way to invest in your future goes beyond asking for promotions and raises — it’s developing a strong support network of not just mentors, but sponsors. Mentors can help you focus on developing your strengths and navigate challenges, while sponsors can help advocate on your behalf to help advance your career. Pay it forward by looking out for other women you can support, mentor and/or sponsor in their career journey.”
GOBankingRates wants to empower women to take control of their finances. According to the latest stats, women hold $72 billion in private wealth — but fewer women than men consider themselves to be in “good” or “excellent” financial shape. Women are less likely to be investing and are more likely to have debt, and women are still being paid less than men overall. Our “Financially Savvy Female” column will explore the reasons behind these inequities and provide solutions to change them. We believe financial equality begins with financial literacy, so we’re providing tools and tips for women, by women to take control of their money and help them live a richer life.
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