Mar 28, 2018 | Investing

How women can close the gender gap in retirement savings

As Women’s History Month (March) segues into Financial Literacy Month (April), I’ve been thinking a lot about…women’s financial history. We’ve come a long way, ladies.

Consider this: Until a little over 150 years ago, a married woman couldn’t even withdraw money that she had deposited in the bank under her own name without her husband’s permission.

And the options for earning that money were limited. As then–Federal Reserve chair Janet Yellen (the first woman to occupy that post) pointed out last year in a speech at Brown, my alma mater, less than a century ago women who wanted to work could aspire to be teachers or secretaries or perhaps lab technicians. That’s about it. And they were often expected to quit working altogether when they married or had children. I don’t need to tick off all the ways in which today’s women are making an impact on our economy, but here are just a few.

• Women make up 47% of the workforce.
• Nearly 12 million businesses are owned by women.
• About 70% of mothers of mothers with kids under 18 are pulling in a paycheck, and 40% are the primary or sole breadwinners in their household.

Despite all the progress, we still have more ground to cover. I find the gender gap in retirement savings particularly worrisome. Research consistently shows that women have much less money to retire on than men, and are more likely to fall into poverty in their old age. The problem is compounded by the fact that women’s average life expectancy is longer than men’s, and their health care costs are higher.

Yet, stunningly, one recent report found that for a woman and a man starting identical jobs, with identical salaries, at the same time, the woman would need to save 18% of her salary to have the same amount at retirement that a man who only saved 10% would have amassed. Say what?

The reason is threefold, and it has everything to do with the economic challenges women continue to face. The good news? Women can anticipate these challenges and meet them.

1. Women don’t work as many years as men, because they often spend time outside of the workforce to have children and, later, to care for elderly parents. Women spend, on average, nine fewer years in the workforce than men.
   What to do: Save more in the years when you are working. You’ll often hear people say you should save 10% to 15% of your salary for retirement. As that report I mentioned above indicates, that won’t put you on equal footing with your male colleagues. So aim to save more. This year, for example, the max you can sock away in your 401(k) is $18,500. Sounds like a lot, probably, but if there’s any way you can swing that, try. (Only about 10% of people manage to do this, and there’s a gender divide there as well: 12% of men do, compared to only 7% of women.) If you get a raise or a bonus, put it there. For women who save in an IRA, the $5,500 a year maximum sadly won’t be enough to catch up. You’ll need supplemental savings, too.
2. The gender pay gap still exists. Though this gap has shrunk in recent decades, women still earn about 80 cents for every dollar that men do. Since how much you can save is, obviously, linked to how much you earn, this is a significant factor in the retirement gap. And here’s another wrinkle: Even if a woman starts out making the same as a man, odds are she’ll receive fewer salary increases over the course of her career.
   What to do: I’ve written before about the importance of women negotiating better salaries and appropriate raises. If you’re timid about this, consider that your salary not only affects your standard of living this year, but it could also make a significant difference in how comfortably you can retire—or if you will at all. In 2009, President Obama signed the Lilly Ledbetter Fair Pay Act, which outlaws discriminatory pay practices and makes them easier to challenge in court, so if you decide to go to the mat on this issue with your employer, it’s easier now than it was.
3. Women tend to take on less investment risk. Historically, the stock market has been the main source of long-term investment returns. And women tend to be more cautious investors than men. Nothing wrong with caution, but you can’t win if you don’t play.
   What to do: There’s some good news here. When it comes to 401(k)s, there’s not much difference between the genders when it comes to how much we make on our investments. That’s because many workers go for a default option that includes stocks. The trouble comes in when women have to make their own choices about where to invest. They often hold their assets in cash or in money market funds, which offer lower returns than the stocks, mutual funds, and ETFs men tend to choose. As Diane Garnick, managing director and chief income strategist at Teachers Insurance and Annuity Association (TIAA), has written, for women, “It may pay to stop worrying about losing money and start worrying about running out of money.”

Despite the obstacles, I am hopeful. We are living through the kinds of changes right now that will end up in the history books. But there’s history, and then there’s you. My final piece of advice: Avoid the cookie-cutter wisdom about your finances that’s floating around out there, and consult a fee-only financial planner (someone who’s paid by the hour and not by commission). These experts can tailor your financial plan to your specific circumstances. You can start the search at the National Association of Personal Financial Advisors. Let’s work to put the gender retirement gap where it belongs: in the history books.