Bridging the Retirement Savings Gap – Five Steps for Women to Prepare for Retirement
Recently I encouraged a female family member, a new college graduate, to take advantage of her employer’s retirement plan at her first “real” job. She responded that her future husband would take care of that. Note that she was single at the time of our conversation!
Needless to say, I was quite surprised by her response and promptly provided her with many reasons to start saving now: the power of early savings and compounded returns, the possibility that she may not get married, or the risk that her marriage may end early (through divorce or death).
Unfortunately, this young woman is not alone in her reluctance to save for retirement. Overall, women save less for retirement than men. According to the recent report Here and Now: How Women Can Take Control of Their Retirement, only 73% of women are saving for retirement, compared with 82% of men. When it comes to an employer’s retirement plan, women tend to contribute 7% of their annual salary, while men contribute 10%.
These discrepancies are likely due to the still existent gender pay gap (women earn 80.5% of what men earn), the fact that women are more likely to spend time out of the workforce to care for children and/or elderly parents, and the reality that women are twice as likely to work part-time, compared with men.
Despite these factors, it is as important as ever for women to be prepared for retirement. How can we bridge this savings gap and empower women to be better prepared for retirement? Let’s review a few important steps to consider that can help women – and everyone – actively prepare for retirement.
Five steps to actively prepare for retirement and bridge the retirement savings gap
Envision your ideal retirement
Make a list of what is important, including goals, hopes, and dreams. These could include additional travel, paying for grandchildren’s education, or a desire to give to charity. Writing goals down makes it easier to make sacrifices today in order to achieve dreams tomorrow.
Determine spending habits and create a budget
Without a budget it is easy to feel like money is always tight and that there is no extra to save. Track spending for a few months, and then review how much is spent in each category (housing, transportation, food, fun and entertainment, etc.). By making small changes, such as giving up a morning latté, additional monies are available for savings.
Set a good foundation
Before saving, it’s important to build a strong foundation to prepare for unforeseen circumstances, such as unemployment, death or disability, separation or divorce. Having emergency savings in place, and adequate life and disability insurance coverage, can prevent a difficult life event from derailing even the best budget.
Start saving now and don’t be afraid to start small
Take advantage of an employer’s retirement plan, such as a 401(k). Make contributions through automatic payroll deductions and contribute enough to capture any matching contributions. Allocate part of any raises to an increased retirement contribution.
Talk with a professional to turn your goals into a plan
Meet with a qualified financial advisor to develop an individual plan that is realistic and makes sense. Creating a plan, monitoring it, and adjusting it over time can make a real difference in the future.
Retirement savings gap conclusion
These five steps are a good start for women – and everyone – to plan for the future. I’m happy to report that my family member did begin saving for retirement. I’m confident that her decision to start saving, along with those of other women beside her, will begin to close the retirement savings gap in years to come.
This is intended for informational purposes only and should not be construed as personalized financial or investment advice. Please consult your financial and investment professional(s) regarding your unique situation.