Ladies: Don't Plan for Your Retirement Like a Man

Saving money like a man
Saving money like a man

In the 1930s, Ginger Rogers beautifully synchronized her dancing in lockstep with Fred Astaire's footwork. Only, as the saying goes, she did it backwards and in high heels.

Unfortunately, when it comes to retirement planning, women face a similar challenge: a set of gender-specific financial obstacles that require more intensive efforts to overcome.

Here's a look at these retirement savings challenges, and what women can do to avoid getting tripped up by them.

The $849,000 Gap

There are three main factors that make it harder for women to save enough for retirement:

1. Longer life expectancy. Women live longer than men -- statistically, five years longer on average. According to 2009 data, life expectancy for a woman is nearly 81 years compared to almost 76 years for a man.

2. Taking more time off work to care for family members. Leaving a job to provide care for a child or elderly relative falls predominantly on women. "The average woman left the workforce for 11.5 years -- not always all at once -- to care for children, elderly parents, and a chronically ill spouse," according to a 2001 report titled "The State of Older Women in America."

3. Less pay for equal work. On average, a woman is compensated $0.77 on a man's dollar, according to a recent study from the Institute for Women's Policy Research based on 2011 U.S. Bureau of Labor Statistics.

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So just how much are these disparities costing a woman in terms of her retirement planning? All told, add up these costs over a lifetime, and we're talking about an $849,000 penalty for being born female.

If a woman entering the workforce today lives five years longer than a man, takes four years out of the workforce to care for loved ones, and makes an average of $30,800 per year (77% of his $40,000 annual salary), then she needs to save roughly $4,000 per year (before taxes) during the course of her working life toward retirement. In comparison, he needs to save $3,080 per year (before taxes) over the course of his working life. That works out to nearly 13% of her annual salary, as opposed to 7.7% of his.

Fair? No. Reality? Yes.

These disparities make it critical for women to understand their retirement planning options and to take steps now to narrow the savings gap. Here are some options:

If You're a Working Woman:

  • If it's offered through your employer, take advantage of the 401(k) or other employer-sponsored retirement plan -- such as a 403(b) or 457 plan. The contribution limits are generous, and any dollar you contribute is one you don't pay in taxes.

  • Many employers offer a 401(k) match. A match is like free money, so contribute at least the amount you need to receive the full match from your employer.

  • Know your employer's vesting schedule. This spells out what percentage of your retirement plan match you can take with you if you leave your employer. By knowing your employer's vesting schedule, you can plan time out of the workforce while maximizing your benefits. Women who join and then leave the workforce without knowing their vesting schedule may be giving up hard-earned dollars.

If You're Married, But Don't Work:

  • A spousal individual retirement account is a regular IRA account; it's just called that to describe how you can make an IRA contribution even if you have no taxable income.

  • Stay-at-home moms (or dads, for that matter) can save for their retirement if their spouse has earned income. You don't need to have earned any money yourself to save for retirement -- in fact, you can contribute up to $5,000 in it so long as you meet the requirements.

  • In order to make a spousal IRA contribution, you must be married and file a joint tax return. Also, the working spouse has to have earned more income than the amount of the contribution.

If You're Self-Employed:

  • American women own 30% of small businesses. If you're a small business owner then don't overlook the retirement plan options available to you.

  • Look into a SEP IRA, a retirement plan designed to benefit self-employed people. The potential amount you can contribute far exceeds the amount you could as a non-self-employed person. An added bonus: Contributions you make to a SEP IRA are generally 100% tax-deductible to your business and, like other retirement accounts, investment earnings in a SEP IRA grow tax-deferred.

Get a handle on your finances so these disparities don't prevent you from dancing your way into a glorious retirement.

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Motley Fool contributor Nicole Seghetti does not own shares in any of the companies mentioned above. You can follow her on Twitter @NicoleSeghetti.