The gender gap in retirement savings is real, and there are two main culprits for this gap. The first is that on average women earn less than men. Not only is it true that too often women are getting paid less as men to do the same job, but the bigger problem from a retirement savings perspective is that women are generally employed in lower paying fields and positions. This puts women at a clear disadvantage when you look at total retirement dollars. However, the gender gain retirement savings is minimal when you compare when and men in the same position or income level.
The second component in the gender gap is that on average women work 12 years less than men over the course of their career. In particular, many women put their careers on hold or work only part-time while they raise their young children. This creates a huge loss in retirement savings early in life when that income is so critical. One of the best tips for retirement savings success is to start early because the compounding effect of your rate of return is able to do so much of the work for you.
So, I have three tips to help women with their retirement savings:
1. Educate yourself. Women are not necessarily less financially literate than men, but they are certainly less confident in their knowledge. Read, ask questions, and gain the knowledge you need to confidently manage your finances. There are so many great books and web sites specializing in personal finance and investment topics. Find a place where you feel comfortable asking questions.
2. Don’t rely on social security or your spouse’s retirement plan. Invest in yourself for yourself. Don’t skimp on putting money into your retirement account because you would rather spend it on your family. You are not being selfish but are looking out for your future needs so that you won’t be a financial burden on your children when they are grown.
3. Increase your retirement savings as quickly as possible. Max out your 401(k) contribution with your company or seek out an alternative IRA if your employer does not offer a retirement savings plan. The sooner you can start adding money to your account, the better off you are because compounding interest can do a lot of the work for you. As a matter of fact, the money you save for retirement from your first job will have a much greater impact on your retirement date than will your salary at retirement. Compounding interest is a true miracle of finance.
Are you saving for your retirement now? When did you start? Do you feel in control of your retirement account or are you completely lost? What do you wish you knew about retirement when you got your first job?