How the Wage Gap Impacts Women’s Retirement (And Tips to Overcome It)
Finding Ways to Develop a Successful Retirement Plan Despite the OddsKathy Longo, CFP®, CAP®, CDFA Monday, 13 September 2021
When it comes to retirement savings, women are at a disadvantage compared to their male counterparts. From the impact of the gender wage gap compounding over a lifetime, to caregiving responsibilities, divorce implications, and more, women often make and save less money than men. Yet, the data shows that they outlive men and are much more likely to end up widowed. When all that combines, the reality for many women is that their typically smaller savings for retirement must cover a longer timeframe.
By the Numbers
A report from the National Institute for Retirement Security (NIRS) found that women who were 65 or older had a median income that was nearly $10,000 less than men of the same age - $47,244 versus $57,144. There are many reasons for the discrepancy. For instance, women earn $0.82 for every $1 earned by a man. In addition to that, they are often pulled from the workforce in order to act as caregivers for children and elderly parents; a role that disproportionately falls to women and can significantly impact their earnings and future Social Security benefits.
Women face very real challenges regarding their retirement planning. Building financial confidence and understanding how life events can impact your savings will set you up for greater success now and in the future.
Healthy Financial Habits Make a Difference
Before you can effectively manage your finances, you must first gain the confidence that comes from understanding your own money story. The reality is that as a woman, you most likely have experienced a gender pay gap throughout your working life. While that income discrepancy of roughly 20 percent may seem insignificant, the effect of a pay gap compounds over time. It may only be a little money now, but that 20 percent turns into a lot of lost income when you’re talking about decades of a career.
Research indicates that women are often less confident than men when it comes to financial matters. If you take steps to empower yourself through education, budgeting, and saving, you can boost your financial literacy and grow your confidence along with it. You can also develop a more solid financial footing by reducing debt and establishing a positive credit history. Less debt means more money to invest in retirement, and higher credit scores translate to decreased borrowing costs and expanded borrowing options.
For many women, figuring out where to start is the biggest obstacle to building financial literacy. Some employers may offer seminars or courses through their retirement plan providers. This can often be a great resource as women can take advantage of these free programs and ask questions of the financial professionals facilitating them.
Seeking financial mentors is another strategy to foster financial confidence. Other successful women can offer advice and guidance about navigating the workplace, negotiating for better benefits, and requesting higher salaries which can help narrow the gender pay gap earlier, decreasing its detrimental effect on women's ability to earn and save.
Splitting Assets When Splitting Up
While no newlywed expects their marriage to fail, that is a reality for many couples. According to an article in Time, 39 percent of marriages in the U.S. will end in divorce. It’s still a dismal figure, despite the fact that this rate has been steadily decreasing since the 1980s.
It’s important for all women to have a solid grasp of their household finances, but it is imperative for women who are headed toward divorce to know what their joint and independent assets are. That’s because, statistically speaking, divorced women tend to take a harder hit to their retirement savings and benefits than men. In some cases, women may be so eager to end their marriage that they leave assets on the table to which they are entitled, including a fair share of their spouse’s retirement savings.
This can be especially significant for women who took time away from the workforce to act as caregivers for their families. These women are at a serious financial disadvantage. Not only were they not earning income for the years they spent as caregivers, but they were also not paying into Social Security or an employer-sponsored retirement plan to draw from later in life.
Pensions, IRAs, and other types of retirement accounts may be considered joint marital property, and those funds can help bridge the financial gap for women. But be sure you understand the tax laws surrounding your spouse’s retirement plans to make the division of assets as equitable and smooth as possible.
Benefits of Self-Employment to Bridge the Gender Gap
Self-employment is not a viable option for everyone, but it can bring some major benefits if you are in a position to work for yourself, including unlimited earning potential, flexibility in work schedules for caregiving responsibilities, and self-selection of employer-sponsored retirement plans.
If you are interested in pursuing self-employment, seek out a mentor who has already gone through the process in the same industry. By talking to someone with this kind of valuable experience, you may be able to avoid some of the challenges and pitfalls that come with managing your own earning potential.
Longer Lives Equal More Long-Term Care
As we mentioned before, women tend to make less money than men over the course of their lives. They also tend to outlive men by as much as five years on average. That combination translates to fewer retirement dollars having to last women for a longer period of time.
The National Institute for Retirement Security (NIRS) reported that women 80 and older are more likely to be widowed, which can bring retirement income challenges and higher healthcare costs. Understanding policy options in advance gives women an advantage when determining how to pay for healthcare, whether through insurance, income, or a combination of both.
Coverage for long-term care, which consists primarily of custodial care and activities of daily living (ADLs) such as bathing, eating, and dressing, is especially tricky. Medicare doesn’t cover ADLs, and long-term care insurance can be difficult to secure and costly once you do.
A Plan for the Future
It’s important for women to get ahead of retirement concerns by planning early, accounting for gaps in income and savings, and estimating potential costs related to long-term needs. It is also wise to have conversations with your loved ones about your plans for retirement and healthcare preferences.
In addition to clear communication and early planning, making a commitment to increase your financial literacy is another critical step you can take to create a retirement plan that meets your needs.
Here at Flourish, we can work with you to build your confidence around finances, empowering you to write your own money story - now and in the future. Contact us today to learn more!
About the Author
Kathy Longo brings over 25 years of expertise and experience to Flourish Wealth Management. Kathy is wholly dedicated to improving the life of each client and finds joy in making complex matters simple and easy to understand. She excels at asking the right questions, uncovering new possibilities and implementing the most advantageous strategies for success. Playing such a pivotal role in her clients’ lives remains an honor and a privilege. After earning a degree in Financial Planning and Counseling from Purdue University, she began her career at a small firm in Palatine, Illinois where she worked directly with clients while learning to build a viable, client-centric business. Over the years, she gained extensive knowledge and wisdom working as a wealth manager, financial planner, firm manager and business owner at notable, various sized companies in both Chicago and Minneapolis.