There is no question that men and women face different challenges in the workforce. Whether it is fighting for equal pay and maternity leave benefits, or trying to re-enter the workforce after raising children, the landscape of employment can be much more difficult to manage for women. Unfortunately, many women find that the challenges do not end in retirement.
There are a few major culprits behind the retirement challenge for women. The U.S Department of Labor recently did a report titled Women and Retirement Saving where they discussed the challenge that women face in their retirement planning. According to this report, the primary challenge is rooted in the reality that women, on average, make less than men. With many of the traditional retirement savings vehicles designed to be based on percentage of salary contributions, the more you make, the more you have available to contribute.
Along those same lines is the fact that women are more likely to pursue part-time jobs that may not offer a way to save for retirement and are more likely to take time off from their careers to raise children or care for a family member. With fewer years in the workforce and lower earnings while participating, the retirement nest egg accumulates more slowly. Another major problem according to the same report is that, of the 62 million wage and salaried women of prime working age, only 45 percent participate in retirement plans. As we discussed in the last article, every contribution matters and no matter how small it can grow significantly through the potential power of compounding interest. This can only happen, however, if you actually contribute.
The final challenge for the purposes of today’s discussion is simply genetic. Women tend to outlive men. According to the US Department of Labor, a female age 65 can expect to live to 85, while a male of the same age is only expected to live to 83. Ultimately, this is the regrettable confluence of fewer savings and more years in which to draw on those savings. Hope is not lost, however. Understanding the challenges women face for retirement is the first step in actively mitigating them. If you work for a firm without a retirement plan or are working part-time, you may have the chance to open a retirement account outside of work. For married women, there are some essential steps you can take to help bolster the family savings account. The family needs to understand that the financial ramifications of one spouse staying home to raise the children isn’t only the loss of annual income, but also the loss of potential retirement contributions as well.
In the event of divorce or separation, it is also important to understand that just because you chose to put your career on pause to raise children, it doesn’t mean that you may not be entitled to a portion of the accumulated sums in your spouse’s plan. Finally, there are a number of ways to maximize social security income by leveraging the highest earning spouse’s credits and they may be applicable despite divorce or death. While the various provisions are beyond the scope of this article, they are worth a read and can be found at www.ssa.gov.
The challenge of adequate retirement savings is one that every American faces. The additional burdens faced by women only further complicate the issue. Once you understand those challenges, however, you can then plan for them as if they are not insurmountable.
This article is meant to be general in nature and should not be construed as personal financial advice. Investing involves risk and the potential to lose principal. Please consult your financial advisor prior to making financial decisions. Gary Parsons is a Financial Advisor with U-Vest Financial®, a separate entity from Waddell & Reed and can be reached at 850.300.7055. Waddell & Reed, Inc., Member SIPC. (04/21)