Women have clearly made enormous strides in the workplace. Unfortunately, when it comes time to retire, many women still do not have the savings they need. According to a 2016 study by The National Institute on Retirement Security (NIRS), women of all age groups have substantially less income for retirement than men. For women over 65, the income disparity can be as much as 25 percent. The study also found women are 80 percent more likely than men to be impoverished at age 65, while women between 75 and 79 are three times more likely than men to be living in poverty.
Though more and more women are starting to earn more than their significant others, the overall gender wage gap is still over 21 percent, with women earning only 78 percent of what men make. Women tend to spend fewer years in the labor force, often for lower pay, and they spend more years alone at the end of their lives.
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Lower wages, less cumulative time in the workforce, and work and pay gaps associated with exiting and reentering the workplace mean women tend to have lower Social Security balances, reduced assets, smaller pensions and fewer opportunities to save or contribute to their retirement plans. A longer life expectancy means their money needs to sustain their lifestyle for longer periods of time.
Many women are finding themselves unprepared to meet the financial challenges of retirement. It doesn't have to be that way. By developing a long-term, disciplined approach to financial planning, women can increase the likelihood the money they work hard for during their earning years will also work hard for them throughout their retirement.
Here are four ways women can close the earnings gap in retirement:
1. Be disciplined about saving for retirement. It can be tough to save for retirement when you're facing financial demands associated with raising a family and meeting ordinary living expenses, but regular, methodical savings will pay considerable dividends in the future.
If you have access to a 401(k) plan at work, contribute as much as possible, as soon as possible, for as long as possible, even if your partner is participating in a separate plan. Contribute enough to receive at least the employer matching contribution. If your employer doesn't offer a retirement plan, you don't work enough hours to qualify for one or you've taken time off to care for family, contribute the maximum amount allowable to a tax-deductible traditional individual retirement account or a non-deductible Roth IRA. Sole proprietors and contractors can establish a non-deductible IRA, SEP IRA or SIMPLE IRA. Since IRA contribution eligibility is determined by income tax filing status and household income, it's essential to understand your eligibility to maximize contributions.
Take advantage of tax-deferred retirement plan options, but don't overlook tax-free savings options, such as Roth IRAs. Though they are not tax-deductible, Roth IRAs are a powerful savings vehicle because they grow tax-free. Just as investment diversification is important, so is tax diversification. If possible, try to build both tax-deferred savings and tax-free savings for retirement.
Roth IRAs allow you to establish monthly systematic contributions for as low as $50 per month (depending on the provider), which can be a relatively painless way to build tax-free retirement savings.