Why Women need to Save More for Retirement

Jerevie Canlas, Ph.D., CFLE

​Historically, women are poised differently for retirement compared to men. Most significantly, women work fewer years and earn less. Women only earn .82 cents for every dollar a man makes, and the discrepancy is larger among women of color. Women spend an average of 9 years taking care of family members instead of being active in the workforce. 
 
Women leaving the workforce to take care of family members is very common, and more especially so in the COVID-19 era. A 2020 survey on the impacts of the pandemic showed that 45% of women have taken on a larger share of caregiving responsibilities since the pandemic and 39% are considering leaving their jobs so they can take on caregiving responsibilities. In the past year, about 3 million women have left the workforce and many are considering quitting their jobs or reducing hours. The phenomenon has been called different names - she-cession, pink recession, etc. 400,000 more women than men have left the workforce since the onset of this pandemic.

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​Fidelity estimated that women who take a one-year career break can lose upwards of $100,000 in retirement contributions and earnings. That’s money that never had a chance to grow because you were not employed for a year. JUST. ONE. YEAR. The decision to leave the workforce has financial repercussions, and the cost of caregiving versus the cost of taking a career break is a complicated battleground. Using a childcare cost calculator released by the Center for American Progress, a 30-year old woman earning $60,000 a year will have a total income loss of almost $800,000 if she takes a 5-year break to take care of a her child(ren).That is equivalent to $300,000 in lost wages, about $250,000 in lost wage growth, and approximately another $250,000 in lost retirement assets and benefits. Considering the big picture, not taking a 5-year career break means a potential income of over 4 million dollars. If you look at it from this perspective, the $18,000 per year bill from your child’s daycare provider is nothing compared to all the lost wages. However, not everyone will make a decision based on the dollar amounts in lost wages or childcare costs. After all, these decisions are not purely economical, but a combination of emotional and practical for a family’s current situation. 
 
Regardless of current or future work situation, there is a clear need for women to be saving more for retirement, most especially so for women who leave the workplace. Investing in your future is a key principle when preparing for retirement, especially among women. A recent survey conducted by FINRA (Financial Education Foundation) and George Washington University found that women have lower levels of investment knowledge and confidence compared to men. However, women who rated themselves as high in investment knowledge were more likely to plan for retirement (73%) and had emergency savings (90%). The truth is, when armed with knowledge and tools, women outperform men in investing and saving. Interestingly, most women think they are worse than they actually are and have doubts regarding their ability to invest wisely. In 2017, Fidelity Investments surveyed almost 3000 individuals and found that women outperform men when it comes to investing, saving more in their workplace retirement accounts, and adding more to their IRA balances. Financial experts agree that while most women think they are not inherently good at investing, women are actually well poised to make excellent decisions for their financial future. Knowledge is power, and the more women know about their retirement and investment options, the more they are able to take control of their financial future.
 
Whether you’re taking a career break, or leaving the workforce for good, you should still be thinking about and preparing for retirement. Here are a few things you can do to build long term savings:

1. If you are married and your spouse is employed, one way to stay on track with your retirement savings is to open a Spousal IRA. As long as your spouse is working and you are filing a joint federal tax return, you can contribute as much to a spousal IRA as your spouse who is employed. This means you can contribute up to $6000 to each IRA account, plus a $1000 catch-up contribution for each eligible individual. 
2. If you were previously employed and had a retirement account, roll those funds over into an IRA. Even if the amount is relatively small, do not cash it out. There are no taxes or penalties when you rollover a previous 401(k) and other retirement accounts into an IRA, and you will have more control over how those funds are invested.
3. Access your Social Security statement to get a clearer picture of your estimated benefits at retirement. If you haven’t already, create an account at ssa.gov.
4. Keep your financial identity. A 2015 study by Transamerica Center for Retirement found that 75% of stay-at-home moms plan to rely on their spouse’s income in retirement. This is not a sound strategy, considering many unforeseen events can dramatically change retirement savings and given the fact that women outlive men. Make sure you are an active participant in the retirement planning process. Be involved and make sure you are protected if anything unexpected happens. Consider having your own checking and/or savings account. Monitor your credit and maintain a good credit history by having a credit card in your own name.

 
Whether you're a stay at home parent or active in the workforce, how are you preparing for retirement?