How Women Can Reduce the Retirement Income Gap

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How Women Can Reduce the Retirement Income Gap

It’s no secret that many American’s struggle when it comes to saving for retirement, but the gender wage gap makes it even harder for women. In fact, the overall gender wage gap is still over 21 percent, with women earning only 78 percent of what men make.

The Rise of the Businesswoman

In 2017, there were 75,175,000 women aged 16 and over in the labor force, representing 46.9% of the total labor force. Last year, women held 51.6% of all management, professional, and related occupations and 44.0% of the subcategory management, business, and financial operations occupations.

From these statistics alone, women have clearly made enormous strides in the workplace. Unfortunately, when it comes to retirement, many women still do not have the savings they need.

The Gender Investment Gap

To fully understand the gender investment gap, it’s key to note that women live longer than men on average. In 2017, the average life expectancy for men is 76 and for women 81. A longer life expectancy means their money needs to sustain their lifestyle for longer periods of time.

Also, 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 (as well as reduced assets, smaller pensions and fewer opportunities to save or contribute to their retirement plans).

How to Catch Up

According to a 2016 BlackRock survey, only 42% of women say they are confident in their savings and investment choices. Despite this negative statistic, it’s not too late to catch up on savings and investments:

1. 401(K) Plans

If your company provides a 401(k), you’re in luck, because workers 50 and over can contribute up to $24,500 annually. Do so for 10 years, and you’ll add another $323,000 to your nest egg if your investments generate a somewhat conservative 6% average annual return. Many employers match your 401(k) contributions up to a certain percentage. That means you’re basically getting free money, so be sure to max out your contributions to get the biggest benefit. Don’t have access to a 401(k)? You can still save in an IRA, and if you max out for 10 years at $6,500 a year (the current limit for workers 50 and older), you’ll have an additional $85,000 in your nest egg, assuming that same 6% return.

2. Spousal IRA

If you leave the workforce for a few years and your spouse is still employed, consider establishing a spousal individual retirement account. Individuals can save up to $5,500 each year in an IRA, plus $1,000 if you’re 50 and over.

Bear in mind that rules apply: One spouse must be earning income in order to sock money away into an IRA. The couple must file a joint income tax return, and they must also be married. What’s more, households with only one working spouse can contribute to a spousal Roth IRA — as long as the couple’s joint income doesn’t exceed $199,000 for 2018.

3. Social Security

More years in retirement mean women have a greater chance of exhausting other sources of income, making them more dependent on Social Security. While Social Security can’t fund your retirement alone, those benefits can play a big role in helping you pay the bills.

If you’re behind on savings, you can compensate by delaying your benefits and boosting them in the process. Specifically, for each year you hold off on benefits past your full retirement age, which, for today’s workers, is 66, 67, or 66 and a certain number of months, you’ll boost your payments by 8%.

The catch? This incentive runs out when you reach 70 – so don’t delay these benefits past that point. But if your full retirement age is 67 and you wait until you turn 70 to collect benefits, you’ll turn a $1,400 monthly payment into a $1,736 payment — for life.

4. Work Longer

It may not be what you want to hear, but if you’re willing to extend your career, you’ll get to collect a paycheck for longer, therefore providing an opportunity to boost your savings, hold off on Social Security, and avoid dipping into your nest egg.

Also don’t discount the possibility of working in some capacity once you leave your full-time job. Whether you choose to consult for a few hours a week in your former field or start a business you’re passionate about, retirement offers ample opportunity to work part-time and generate income. And that’s a good way to make up for lost savings.

Finding Investment Advice That Works for You

Every woman, no matter what her current financial situation is, should assume a more active role in her financial well-being. If you feel like you need help talk with a retirement financial advisor at CKS Summit Group to get a sense of how you should invest to reach your goals — and do it as early as possible. The sooner you take steps to increase your savings, the less likely you are to run into financial trouble once retirement comes to be.

Set up your complimentary strategy session with us by clicking here, or simply give us a call on 586-286-5820. We look forward to working with you to bring you fresh new ideas for your retirement income.