Retirement watchouts for women
Retirement is intended to be a peaceful phase for older people. But the stress of planning for this phase and building up a 401(k) can sometimes make it feel anything but. Women must be proactive about saving effectively and making up for ongoing financial discrimination. As a woman planning her retirement, here’s what you need to know.
What is the gender pay gap?
Sadly, many working women still receive lower wages for performing the same roles and professional functions as men.
This is called the gender pay gap, and it’s a result of discrimination rooted in the history of traditional gender roles (a breadwinning husband and a homemaking wife).
Colleagues or company executives often devalue or underappreciate women's work, and many women struggle with career progression due to necessary family care absences or inherent company biases.
Factors like racial discrimination and class prejudice exacerbate the issue for minority and working-class women.
These are just a few of the most pertinent facts about the state of the gender pay gap in America:
Women earn less than men in nearly all job roles, though there are a limited few occupations in which women, on average, make more than their male counterparts (often health and social care occupations)
Women earn 82 cents for every dollar a man makes (Bureau of Labor Statistics from 2020 show that the annual earnings of women are 82.3% of the annual earnings of men)
The COVID-19 pandemic has worsened the pay gap situation, with layoffs and a lack of childcare options forcing many women out of the workplace entirely
Black and Latina women educated to the level of an undergraduate degree suffer from the most significant pay gap, earning 65% of what black and Latina men educated to the same level earn.
There are lots of charities and organizations in the USA that are actively campaigning for pay equality.
Still, the pay gap is an ongoing issue, and it’s an issue that may impact how a woman needs to plan for her retirement and handle her 401(k) compared to a man.
Retirement planning for women
After decades of hard work, many older women look forward to the day that they can retire.
Many younger women want to plan in advance for this day, looking after their future selves as well as they can.
A comprehensive financial plan for retirement is essential at any age. It allows goals to be set and achieved and creates contingency plans for any unexpected events that crop up.
Women looking to plan for their retirement should:
Assess their current income and spending habits
Figure out their retirement goals/the kind of retirement they envision (accounting for longer life expectancies)
Start setting savings goals and determining milestones
Invest early and regularly – the earlier a person starts saving, the more they can grow their investment before retirement (wealth managers tend to recommend that people set aside 10-15% of their income for retirement)
Organize their estate and create a plan for major life changes from death to divorce
Protect their assets with safety nets like insurance policies, reviewing them once a year to ensure they continue to provide appropriate benefit levels
How can women protect and maximize their 401(k) and savings?
Unfortunately, and due to the same kind of discrimination that causes the gender pay gap, many women are still financially underprepared and ill-equipped for their golden years.
In retirement, you’ll need to replace 70-90% of your income to maintain a similar standard of living.
The ability to do this will come from taking charge, getting informed, and being proactive about your retirement plan.
You can use a Social Security Retirement Estimator to get an idea of the future benefits you’ll be entitled to based on your earnings record.
This should tell you what you need to do to fill the gap and support the standard of living you’re aiming for in retirement.
There are lots of things to pay attention to in pursuit of this gap-filling goal, like the option of continuing to work to delay collecting Social Security (each year that a claim is postponed after retirement age, benefits grow by 8%, meaning a growth of 132% by age 70) and the difference between variable and fixed annuities.
Women should be creating not just a retirement plan but a diversified, robust retirement plan.
Saving a few extra dollars whenever possible is important. Though these savings might feel minimal in the short term, they could make a significant difference over many years.
In retirement, you’ll need to replace 70-90% of your income to maintain a similar standard of living
Should women watch out for anything when planning their 401(k)?
There are a few mistakes that might impact your 401(k) and overall retirement plans.
If you quit your job, for example, you need to know that you might be leaving money on the table in the form of employer contributions to a 401(k) plan.
Other things for women to watch out for include:
Their employer’s attitude to career breaks for family care reasons – specifically whether this attitude will impact their retirement contributions
The state of their overall finances, including any unpaid debts and the presence/lack of an emergency fund for unforeseen life events and changes
The quality of their investments – it isn’t enough to invest and walk away, as poor investments can have a hugely detrimental effect on a 401(k)
The quality of their tax planning (the advice of an experienced financial advisor can help a lot in this department, as well as with the above)
The balance of their portfolio, which should be addressed quarterly or annually so that assets can be maintained when market conditions change
We’re on hand at Unbiased to give you timely, relevant information that will help you make more confident financial decisions.
Kate has written for leading publications and blue chip companies over the last 20 years.