A Look at the Retirement Savings Gap between Men and Women

A Look at the Retirement Savings Gap between Men and Women

Planning for retirement involves a different approach for each person, which can mask some of the differences in the way that men and women save. Jean Chatzky, the financial editor of NBC’s Today Show, highlighted the disparity in saving practices between men and women in the United States in a 2019 podcast interview. Statistics have consistently shown that women earn less than men in most sectors. For this reason, it’s often difficult for women to save as much as men when it comes to retirement. This issue is particularly important considering that women need to save more than men in retirement. Since women generally outlive men by an average of five years, they often need to make their retirement dollars stretch further despite barriers to saving more.

The Financial Position of Women in the United States

According to data released in 2019 by GOBankingRates, male employees contribute an average of $2,633 annually to retirement accounts, while females contribute $1,331. This means that women may have half as much money as men upon retirement, which is potentially problematic considering that they generally have longer lifespans. Contributing $1,331 to a retirement savings account annually for 40 years results in a total balance of $266,000, even with a somewhat aggressive assumed annual return of 7 percent. However, the gender wage gap makes it difficult for women to increase their contributions. According to The Ascent, median earnings by women in 2018 were only 81 percent of that of men.

The wage gap is not the only obstacle that women encounter in regards to saving as much money as men for retirement. Another issue that deserves attention is the fact that women are more likely to leave the workforce to care for children or to watch over aging family members. This can limit their ability to save money and impact their Social Security payments, which are based on long-term earnings.

Moreover, after interviewing hundreds of women for her book Women With Money, Chatzky found that the majority of women focus on financial security and choose to save to guarantee their well-being and that of their families. This can make them potentially more averse to investing due to the risks involved.

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Recommendations for Women As They Prepare for Retirement

Chatzky has some recommendations for women regarding retirement planning, such as saving as much as possible early on in their careers. By putting a small amount into a 401(k) during your 20s, it can grow rapidly over time as a result of compounding interest and can help to build a solid foundation for your future. Additionally, Chatzky advises women to open a Health Savings Account, which provides tax-free funds to pay for healthcare expenses as they grow closer to retirement. During this period, people often have fewer expenses as their children graduate and as they pay off their mortgages. However, healthcare costs typically begin rising, which is where an HSA becomes so valuable.

When choosing between a 401(k) or an HSA, the most beneficial approach is to invest in both. While a 401(k) remains one of the primary tools for retirement savings, an HSA is also a valuable option that some overlook. An HSA provides an upfront tax deduction and never incurs taxes on the principal in the account or the interest it accrues, provided that the funds go toward qualifying healthcare costs. Some employers also offer incentives on HSAs that make them just as good an option for direct contributions as a 401(k). Chatzky suggests that people carefully consider the balance of their contributions to make their money do the most work that it can, which might involve maxing out HSA contributions before their 401(k).

Another thing that women can consider doing to save more for retirement is to ask their employers for a raise. When women negotiate their salaries, it’s beneficial to base the numbers on their specific financial needs and to take into account not only their lifestyles, but also the need to build a savings plan and emergency fund. As more women begin seeking larger salaries, the wage gap could begin to close and empower women to save money and create the kind of future that they want for themselves and their families.

Sharing Knowledge Can Help Women Improve Decision-Making

According to a 2019 report on the outlook for women in retirement from the Transamerica Center for Retirement Studies (TCRS), only 14 percent of women regularly discuss saving, planning, and investing with their friends and family. Moreover, over 30 percent stated that they never talk about money, potentially putting them at a disadvantage.

The TCRS urges women to start such conversations with their friends and family in order to expand their financial knowledge and encourage one another to prepare for the future as much as possible. Stacy Francis, the CEO of a financial services company, suggested that women consider holding regular meetings with friends to talk about retirement planning.