Retirement planning is difficult for anyone. It takes a lot of saving to put away enough to support yourself continually once you’ve left work. Many people end up depleting their savings early and are forced to return to work to make ends meet. However, according to a recent report by Financial Finesse, the struggle to build up an adequate nest egg is much harder for women than for men. Why? Here are three reasons.
The Wage Gap
There’s a lot of dispute as to exactly how big the wage gap is between men’s and women’s salaries, and how it should be calculated. Moreover, it does appear that the difference is gradually shrinking over time. Still, the evidence does tell us that, no matter how you figure it, women, on average, make less money than men do for the same job and hours.
This makes it more difficult for women to save for their retirement. If you’re not making as much money, there’s less to put away and smaller returns on investments. Over the years, this can lead to a serious deficiency in your IRA or 401(k).
A Broken Career Trajectory
In addition to making less money, women are also more likely than men to stop working entirely for periods of time in their careers. Often this break is taken to have and raise children, though it could also be for a number of other reasons, such as to take full time care of an older relative who is no longer able to live on their own.
Whatever the reason, if there’s a task that needs to be taken care of at home, it frequently falls to the woman to attend to it. Often she ends up giving up her own career in the process whether temporarily or permanently.
Either way, during this extended work hiatus she’s also not building up her nest egg, which can result in a serious shortfall once she reaches retirement. If she takes the break between the ages of 45 and 55, it can cost her around $1.1 million in savings. If she leaves her career earlier than that, for the same amount of time, it can mean losing closer to $1.3 million due to the loss of investment growth.
The breaks in a woman’s career can lead to another shortfall for her IRA or 401(k). When you leave your job for an extended period of time, you miss out on opportunities to be promoted, or even simply to get a pay raise.
This means essentially your career is frozen during the time that you’re away. When you finally return to work, you can find yourself at a significant disadvantage compared to the men your age, who have been climbing the ladder this entire time. That’s assuming that you’re even able to come back at the same salary you had when you left, (and that inflation and cost of living increases haven’t caused the same paycheck to have less buying power). One in five women returning after a career break reportedly experience a pay cut of 20% or more from what they were making when they left.
Each of these reasons is a reflection of the society we live in and its distorted expectations of both women’s and men’s roles. It’s hardly fair. But even so, it’s the reality we live in. You can work to change it, but in the meantime, you need to accept the implications for your retirement and your savings, and plan accordingly to make up for this shortfall. Otherwise, you’ll never be able to build up enough money to support yourself once you retire.