Retirement and the Savings Gap for Women
‘œRetirement: It’s nice to get out of the rat race, but you have to learn to get along with less cheese.‘ ‘“ Gene Perret
For many people, contemplating retirement can trigger anxiety about having enough money. There are gobs of books one might read to make sure the magic number has been saved. There are worksheets and online calculators that can help determine the amount. While it’s a highly personal calculation, figuring out the number is usually the easy part.
Establishing the plan to reach the number is typically the bigger challenge. Women have a harder time than men with closing the retirement savings gap. We live longer and make less. This isn’t an astounding revelation.
But what causes the gap and how women can make up for it? Allstate is running a brilliant advertising campaign that notes:
The average woman spends 11 years out of the workforce taking care of family. Leaving her without enough money to take care of herself.
Penelope Trunk writes that pay is equal for men and women until there are kids. No matter what your views are on careers and parenting, being a stay-at-home mom (or homo homemaker) puts us at a disadvantage financially. Alternatively, leaving the workforce in middle age to care for an aging parent is another culprit. While more and more men chose to stay home or be the primary caregiver, the numbers are still skewed towards women and therefore the gap remains.
How can we women close this retirement savings gap? Allstate has some ideas:
Make Every Earning Year Count. Right now, only 47% of working women participate in a company retirement plan. American businesses can do much more to help that number grow. 401(k) strategies such as company matches, encouraging participation by part-time workers, automatic enrollment and automatic increases in contributions as employees get raises are all proven ways to help build savings. And the earlier an employee starts saving, the more prepared she’ll be for retirement.
Promote Spousal IRAs. Non-working women (and men) can invest up to $4,000 to grow tax-deferred in a Spousal IRA for the 2007 tax year, as long as there is a spouse in the workforce. The limit will increase to $5,000 in 2008.
Unfortunately, this doesn’t apply to the LGBT community. You have to be married for a Spousal IRA to be available to you as a stay-at-home parent. This puts queers at a further disadvantage.
Jonathan Peterson had an article in the LA Times awhile back that cited recent findings and warns that the Golden Years May Not Shine. He writes:
Many Americans are stumbling toward retirement with big misconceptions about how to prepare financially for old age and with inadequate saving for a time of intensified economic pressures on the elderly.
So what are you doing? And how do you plan on making up the gap?
Personally, I think participating in your 401k/403b at work, if you work for a medium to large organization, is the best way to at least lay the foundation. My partner and I both contribute 15%, with a 3% match from our employers. If 15% makes you have a heart attack, try increasing by 2%/year, and do the increase so it starts around the same time as your annual review & raise.
In a perfect world, we’d also be funding our IRAs, but in the real world, that hasn’t happened since our son was born.
Although I prefer to do my own research and make my own investment decisions, I also think getting a professional consultation every couple of years is a good idea. I did one last year and found that I was heavily over-represented in a couple of categories, and under-represented in a couple of others. I did some tweaking over the year and feel like I have better market segment diversity in our investments.
Liza: I totally agree that a professional consultation is worth it. Unlike you, I prefer to work with a financial advisor, but seeing a fee-based professional for advice every year or two is a great suggestion.
Readers might find these two posts to be helpful in making these choices:
How to Pick a Financial Planner
When Do You NEED a Financial Planner?