The troubling gender gap in retirement savings
The average man has 57 percent more tucked away than the average woman. It doesn't have to be this way.
In the 1950s, women earned about 60 percent of what men took home. By 1990, the gender pay ratio had inched up to 70 percent. (Yes, it took over three decades to make "progress.")
Today, that figure is closing in on 80 percent. But while women have made strides when it comes to pay equality, there's another great money divide between men and women that may be just as alarming as that 1950s stat: retirement savings.
In fact, a new LearnVest.com survey found that an American woman's retirement nest egg totals approximately $150,000, on average, while a man's comes in at roughly $235,000. That's a 57 percent difference! There's also the fact that a recent Merrill Edge Report additionally revealed that men in the U.S. are planning to save $232,000 more than women for retirement overall.
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And there's even more to this disparity story: It turns out that attitudes about how to use retirement savings also clash between the genders. According to a Prudential study, the top financial priority for men in retirement is to "maintain their lifestyle," while for women, it's to "not become a burden to loved ones."
Intrigued by these various findings, we decided to canvass the country for men and women in their twenties, thirties, and forties, who make comparable salaries and are in similar life stages, to see where they fall on the retirement savings spectrum.
Then we asked Learnvest Planning Services Certified Financial Planner™ Katie Brewer and Laurie Nardone, a Certified Financial Planner™ at Shira Ridge Wealth Management, for their insight on what these people are doing well — and how they can help overcome the gender divide to save more.
And before we forget, here's another stat to consider: On average, women tend to outlive men by five years, making squirreling enough away for retirement all the more critical.
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THE TWENTYSOMETHINGS
Andrew Legrand, 28, New Orleans
Relationship status: Single.
Job: Attorney at Andrew Legrand Law, LLC.
Total retirement savings: Just over $2,000 in a Roth IRA.
Contributing since: April 2013.
Contributes: $150 per month (no employer match).
Projects to have: $459,000 by age 69.
Projected monthly income in retirement: $1,912.
What Andrew says: I just began saving for retirement this year, but I feel confident about where I am. I started my own firm right out of law school, and after just over two years as a self-employed attorney, I'm finally in a position to start thinking about my future. My plan is to max out my contribution to my Roth IRA this year. As for what I'll do with that money in retirement, I don't have any specific plans yet — but I do know that I need to save!
What CFP Brewer says: It's great that Andrew has started to put money toward retirement, while balancing the demands of self-employment. If he's going to max out his IRA this year, contributing a total of $5,500, then he'll have to increase his monthly contribution. Since he can only contribute up to $5,500 to a Roth, and the IRS will start reducing the amount he can contribute as soon as his salary gets up to $112,000, he might want to think about starting a small business retirement plan, like an SEP. The SEP annual contribution limits are higher (up to 25 percent of your salary or $51,000 per year), so he can save more that way.
What CFP Nardone says: Since he runs his own business, another option for Andrew is to open a solo 401(k), which allows him to contribute up to $17,500 per year and combine it with a profit-sharing plan, if he's profitable. If he does this or switches to a SEP, he may have a better chance of meeting his projection, because his current strategy with the Roth IRA will not get him to his goal.
As far as how Andrew is doing for someone of his age and gender, anyone like him who starts saving for retirement in their twenties is ahead of the game. Many people — especially those who are self-employed and don't have a human resources representative giving them paperwork about retirement — don't even give it a thought.
Katie Winn, 29, San Francisco
Relationship status: Married.
Job: Account manager at Twitter.
Total retirement savings: $60,000 ($45,000 in a 401(k), plus $15,000 of stocks).
Contributing since: 2008.
Contributes: $1,000 per month (no match).
Expects to have: Hopefully over $2 million between the ages of 60 and 65.
Projected monthly income in retirement: $9,500.
What Katie W. says: I feel like I'm doing fairly well with my retirement savings. Of course, I could always be saving more, but I like to eat out too much! As far as what I plan to do with my retirement money, I would love to travel to places like Hong Kong, Machu Picchu, and Morocco.
What CFP Brewer says: Katie is doing a great job with her retirement savings. Since she doesn't have an employer match, and she wants to do a lot of traveling in retirement, she may want to bump up her contributions by a percent every year to get closer to 15 percent to 20 percent of her income.
What CFP Nardone says: Katie is on track to meet her goal. Whenever someone has a system in place, like she does, that person is usually more wired for financial success. And she's definitely doing better than most women her age, but she might be closer to average for someone in Silicon Valley.
In terms of who has the edge — Andrew or Katie — right now it's Katie. But Andrew shouldn't give up hope, because he has the ability to move past her if his company becomes profitable and he takes advantage of the SEP or the 401(k) plus profit-sharing option. That would allow him to contribute much more to his retirement each year than Katie if she continues on the same path.
THE THIRTYSOMETHINGS
Emad Rahim, 36, Chicago
Relationship status: Married with two kids.
Job: Entrepreneur-in-residence at Oklahoma State University and chief information officer at Global i365 LLC.
Total retirement savings: $64,200 (IRA and stocks).
Contributing since: On and off for nine years.
Contributes: $1,400 per month.
Expects to have: $500,000 to $700,000 by age 50.
Projected monthly income in retirement: $5,000 to $6,500.
What Emad says: Saving for retirement is time-consuming, and I could definitely do a better job than what I have done thus far. I've contributed on and off due to a variety of reasons. In my early to mid twenties, I experienced some job instability, and I also didn't recognize how important it was to start saving for retirement early. In my late twenties and early thirties, I was back in school and working on my doctorate, which made it difficult to save. Then I lost $49,000 during the recession, which was disappointing because it had taken me roughly seven years to save that amount. My investments weren't high risk, but I wasn't paying attention to my statements — and I took a big hit.
My job as a professor doesn't offer a 401(k) plan, nor does my job as CIO, so I'd like to get a teaching job in the future that's on a tenure track and provides a 401(k) plan with a match. When I retire, I would like to use the money to maintain my lifestyle — everything from rent and food to my gym membership and travel to conferences — as well as luxury items, technology, and jewelry.
What CFP Brewer says: Trying to get a teaching job that offers a 401(k) is a good idea because he could then contribute up to $17,500 a year, unless his contribution amount is limited by his employer's plan rules. As a professor, he should also look into whether he will be eligible for a pension at retirement. Lastly, he noted that he's contributed on and off. Moving forward, he'd benefit from committing to keep his retirement contributions stable, and increasing them semi-annually or annually.
What CFP Nardone says: Emad isn't currently on track to meet his goal. He would need to have at least $120,000 saved now to reach even the low-end of his ideal retirement goal range by age 50. He took a big hit during the recession and doesn't have a lot saved, compared with other people of his age and gender. He's a busy guy with two jobs who might need to support his spouse, so I'd recommend that he work with a financial planner. Saving probably won't feel time-consuming once he puts a regular process in place.
Aubrey Rose, 30, San Diego
Relationship status: Single
Job: Self-employed writer and manager of a tutoring center.
Total retirement savings: $120,000 in a Roth IRA and 401(k).
Contributing since: 2007.
Contributes: $1,916, plus a $180 company match per month.
Expects to have: $750,000 by age 45 ("I want to retire early!").
Projected monthly income in retirement: About $3,000.
What Aubrey says: I max out both my IRA and 401(k) each year. And my tutoring company matches a portion of my salary. I feel very confident about my savings, and I'm the go-to person among friends for investing advice. My house will be paid off by the time I'm 45, so I would like to retire then and continue pursuing entrepreneurial adventures for fun. I plan to travel and write, and leave some money and property to my (future) kids.
After my dad died, my mom had to work hard to make ends meet to support me and my sister, and I learned to save from her. While I don't like to spend money on consumer goods — I don't even own a television — travel is the one luxury I indulge in. I normally take six to eight weeks of vacation each year, and I visit my mother in Hawaii every winter. I think a rich life is more about experiences than toys, and I want to have the freedom that comes with not being tied down to a job.
What CFP Brewer says: Aubrey's retirement savings are impressive. If she retires at, say, age 60, she'd be able to access her retirement accounts, but she'd need to figure out how to get and pay for health insurance until Medicare kicks in at 65. If she retires much earlier at 45, as she would like, then she'd need to solve the health insurance problem — as well as survive on savings outside of her retirement accounts until she hits age 59.5 and is able to access her retirement accounts without having to pay early withdrawal penalties.
What CFP Nardone says: Aubrey is a fantastic saver. She has all of the qualities of being financially successful, and she has saved more than most women her age. Compared to Emad, she is currently on track to be the winner. She has saved more money, she lives on less money per month, and she has established good and consistent habits. But my big concern with Aubrey is that she really has to live a no-frills life if she wants to retire on just $750,000 at age 45 — especially in San Diego, an expensive city.
If she's willing to live on $3,000 a month, as she says, she may survive, but when she no longer has to work and can do whatever she wants, will she truly continue to live that modestly? And when you factor in inflation, she'll really probably need $4,000 a month to achieve the same quality of life. Plus, I don't know if she plans to have a family someday, but if she has to support a partner in the future, she might need more than she expects. In other words, she's on track to meet her goal, but I'm not sure that her goal amount is enough. She should consider retiring at a later age or increasing her contributions even more.
THE FORTYSOMETHINGS
Frederick J. Goodall, 43, Houston
Relationship status: Married with three kids.
Job: Publisher of MochaDad and MochaManStyle.
Total retirement savings: $430,000 spread out in a 401(k), Roth IRA, IRA mutual funds and annuities.
Contributing since: 1994.
Contributes: $500 a month (no company match).
Expects to have: At least $1 million, but not sure of his retirement age yet.
Projected monthly income in retirement: $7,500.
What Frederick says: With my retirement savings, I feel as if I'm doing well. My first boss instilled in me the importance of saving for retirement and helped me to set financial goals. The amount that I contribute varies, based on my goals at the moment. For instance, when I was saving to buy a house, I reduced my contribution amount. And I'm contributing a fairly low amount now, since I'm saving for my kids' college tuition.
I haven't set a specific retirement age because I'll probably keep working as long as my business is successful. I plan to use the money to travel, maintain my lifestyle (going to my favorite restaurants, seeing jazz concerts and feeding my technology addiction), and help others by donating to charities.
What CFP Brewer says: It's great that Frederick is still contributing to his 401(k), while saving for other goals. But he needs to make sure that retirement takes precedence over college because you can borrow for education, but you can't for retirement. And I would advise Frederick to choose a retirement target date and plan, so that he can draw a line in the sand and say that business income will be truly optional once he reaches financial independence with a fully funded retirement portfolio.
What CFP Nardone says: It sounds like he's got it together. He should have no problem meeting his retirement target if he continues on this path: He's got a good foundation, and I can tell that he's given some thought to his investments, since he's got all of those different accounts. Frederick is certainly doing better than most people of his age and gender, but I'd still advise him to put away even more than $500 a month. In your forties, you're often making your peak salary, and except for college tuition, the costs associated with caring for your kids are typically largely over. Life is full of uncertainties, so save while you can!
Hope A. Rising, 48, Clearwater, Fla.
Relationship status: Divorced with six kids.
Job: Paralegal.
Total retirement savings: $30,000 in a 401(k).
Contributing since: 1994.
Contributes: $100 to $200 per month, plus a company match of 3 percent of annual salary.
Projected monthly income in retirement: "I don't know!"
What Hope says: I've had a retirement account since 1994, but when I moved from Denver to Florida in 2002, I cleared it out to pay for moving expenses. When I got divorced in 2005, I did it again in order to move away from my ex. I've had my current 401(k) since 2010, but I definitely feel lost when it comes to saving for retirement. I live fairly inexpensively, and I don't have much of a lifestyle to maintain. My goal in retirement is mainly not to be a financial burden to my children.
What CFP Brewer says: The fact that Hope has, at times, halted her contributions and taken money from her retirement accounts has set her back. And believe it or not, cashing out a 401(k) is not as uncommon as you might think. In fact, one recent survey found that, when leaving a company, more than 42 percent of workers between the ages of 40 and 49 do it!
What CFP Nardone says: Hope is in trouble compared to other women her age, and she should make some serious changes. The first problem is that she doesn't have a goal, so she should meet with a financial adviser to create one. At her current rate of saving, she might be looking at $120,000 to $130,000 of savings with growth by age 65, but that isn't nearly enough.
One thing that may help her is Social Security, but it probably isn't going to be much — maybe $800 to $1,000 a month. I don't know whether she can tap into her ex-husband's Social Security, but depending on how long they were married and other factors, that could be an option. Based on my estimate, she needs $1,800 of today's money to live per month, but with inflation, that could be $3,000 by the time she's 65. She'll likely have to work way beyond age 65 — maybe until 75 — unless she opts to get a second job now.
There's really no comparison between Frederick and Hope. But the good news is that Hope has at least 20 more years to turn things around. She should find a way to increase her contributions — and promise herself that she will never cash out her 401(k) again. She should make her retirement a priority.
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