Gender inequality gets a lot of press these days, for good reason. American women, on average, are still only earning about $0.80 for every dollar that men make, and that statistic is even worse for minority women. We all know that this makes it harder for women to cover their living expenses, provide for their families, and save for their long-term goals. But you may not have considered what is perhaps the most disastrous consequence of the gender pay gap.
The median retirement savings for U.S. working women is just $23,000, according to a recent Transamerica survey, while the median U.S. working man's retirement savings is $76,000. While neither of these amounts is enough to cover the real cost of retirement, it's clear that men are much further along than women. Women's longer average life expectancies compound this problem, because more years of living expenses mean more savings are needed.
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Until we close the gender pay gap, saving enough for retirement will be a bit of an uphill battle for women. But if you take the following steps, you can still have a chance at a comfortable retirement.
1. Create a retirement plan
A retirement plan is your roadmap. It tells you what steps you need to take in order to reach your goal -- in this case, a comfortable retirement.
Start yours by estimating the length of your retirement. Subtract your ideal retirement age from your estimated life expectancy. Keep in mind that you may have to push your planned retirement age back if you're unable to save enough per month to hit your original goal.
Next, estimate your annual retirement expenses using your current expenses as a baseline. Note that some expenses, like child care, might decrease or disappear; others, like healthcare and travel, might increase. Multiply your estimated annual expenses by the number of years you expect to be retired, adding 3% annually to account for inflation.
A retirement calculator can do this math for you, and calculate your savings growth too. To be conservative, use a 5% or 6% annual rate of return. Your calculator should present you with both total and monthly savings goals. Subtract from this any money you expect from Social Security, a pension, or a 401(k) match, to figure out what you must save independently.
Try to save as much as your retirement plan recommends. You may have to cut back spending in other areas to free up the cash. If you're unable to do that, try adjusting your retirement plan. Consider delaying retirement or applying later for Social Security, to see if that can help you make ends meet.
2. Open a retirement account if you don't have one
The Transamerica survey found that 14% of working women in America have no retirement savings at all. If you're one of them, you'll probably need to open a retirement account. A 401(k) is a good option if your company offers one; definitely start here if your employer matches contributions, as this reduces the savings burden on you. If not, you can open an IRA on your own.
You're allowed to contribute up to $19,000 to a 401(k) in 2019 and $19,500 in 2020. You may also contribute up to $6,000 to an IRA in both years. Adults 50 and older may contribute up to $25,000 to a 401(k) in 2019 and $26,000 in 2020, plus $7,000 to an IRA.
You may also have to choose between tax-deferred and Roth retirement accounts. Tax-deferred contributions reduce your taxable income for the year, but then you'll owe taxes on your retirement distributions. These accounts make the most sense if you believe you're in a higher tax bracket today than you will be once you retire. Roth account contributions don't give you a tax break this year, but you won't pay taxes on your retirement distributions. Roth accounts are the better option if you think you're in the same or a lower tax bracket today than you will be in once you retire.
3. Don't neglect your career
Women are more likely than men to step back from the workforce to care for children or sick family members, but doing so can make saving for retirement much more difficult; you may no longer be able to afford to set aside money for your future. Stepping back can also reduce your Social Security checks, because they're based on your average monthly income during your 35 highest-earning years. If you're not in the workforce for at least 10 years, you won't qualify for Social Security (based on your own work record) at all.
Try to stay working as long as possible, and seek out opportunities to increase your value to employers. To move up in your field, consider going back to school or taking professional development courses. Keep an eye out for other employers that are paying better, and use this as leverage to get a raise at your existing company, or simply switch companies.
Even if you follow all these steps and save as much as you can, saving enough for retirement may never be easy. But there's no denying its importance, so give it your best shot.
