There is a US retirement gap, and women are saving a lot less
American workers with an eye on retirement have got some serious catching up to do.
In the United States, the “retirement-savings gap”––the difference between what a person believes they need to retire comfortably, and how much they currently hold––is growing fast. But among women, the gap is even wider.
In 2020, the American worker’s “magic target” for retirement was $951,000. In the five years since, according to a new survey by Northwestern Mutual, that number has crept up to $1.46 million, in a rate of increase that outpaces inflation.
Meanwhile, the average amount Americans have saved for their retirement currently stands at $88,400.
Retirement gap disproportionately affects women
However, there’s an even more pressing retirement gap appearing in U.S. society, and like many of the other gaps, this retirement gap disproportionately affects women. While dollars and cents may appear indiscriminate on a bottom line, in actual fact retirement outcomes are anything but gender-neutral.
A Goldman Sachs report earlier this year found that 28 percent of women are saving less than $50,000 for retirement. That means that one in four women are living on a paltry $2,000 a year.
This in turn pushes up womens’ reliance on social security benefits, but in a cruel irony, women on average receive 22 percent less in social security benefits thanks to yet another gap: the discriminatory pay gap. Adding insult to injury is the female shortfall in earnings created by part-time work patterns that is imposed by caring responsibilities.
Another reason women retire with less to live on is the fact that they tend to retire earlier than their male cohorts, and often unexpectedly, without the requisite financial planning in place. What’s more, women live on average five years longer than men, so their already-stretched retirement funds need to go even further. All of these disparities combined mean that women, who make up more than 50 percent of the U.S. population, are retiring with anywhere from 24 percent to 30 percent less than the other 49.49 percent.
So what can be done to address the gap?
Not all of the solutions lie with women themselves; this is not merely about changing mindsets or monthly habits. To level the retiring field, the government needs to address provisions for part-time workers, as well as better help with long-term student loan debt. Such measures would positively benefit women.
Look to the pros
A self-empowering measure that could turn womens’ fortunes around is to engage a professional retirement advisor: a small investment that could make a huge difference in the long-term (some employer retirement schemes offer this for free).
A professional can advise about investment management strategies and the use of target date funds, which gear investments toward a projected retirement date and tend to suit women, who tend to be more risk-averse and more focussed on the present than men.
Another powerful measure to improve your retirement outlook is to understand the power of compounding interest. If you’re in the early stages of your career, start your plan as early as possible, and automate your contributions.
And finally, don’t delegate your financial planning. If you’re a woman in a relationship where your partner handles bills and accounts, reclaim your retirement planning for yourself. Statistically, there’s a decent chance you’ll outlive a male spouse, but either way you’ll never regret having influence over your own retirement outcome.
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