The troubling gender gap in retirement savings

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last updated 11 January 2015

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.")

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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 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.

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.

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.

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.

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!

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.

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.

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