3 Ways Women Can Close the Retirement Savings Gap

Statistically speaking, women tend to live longer than men. While there’s a lot to like about living a longer life, this marker also means that women, in comparison to men, generally need to have more money socked away for their retirement years.

Unfortunately, retirement stats suggest that women have a higher likelihood of ending work with less retirement savings, not more, than their male counterparts. In this article, we’ll be taking a deeper look at the retirement savings gap and the three key strategies that are helping women around the world close it.

Breaking Down the Retirement Savings Gap

As the name suggests, the retirement savings gap refers to a persistent male-favored disparity in average retirement savings. The good news is that the retirement savings gap is closing. The bad news is that it’s not closing fast enough.

In a recent study from the Transamerica Center for Retirement Studies, 45 percent of female respondents—compared to 29 percent of male respondents—expressed a lack of confidence in their chances of retiring comfortably. The study also found that the median household retirement savings listed for female respondents was only $23,000, or roughly a third of the median household retirement savings for male respondents. According to the study, men were also twice as likely to report a retirement savings balance of more than $250,000.

What’s Driving the Retirement Savings Gap?

When discussing this topic, economists and personal finance specialists typically identify three broad causal drivers for the existence and continuation of the retirement savings gap:

  • Gender disparities in occupation selection:

    Unfortunately, wage data indicates that female-majority employment sectors have, on average, lower salaries in comparison to male-majority industries.

  •  Unequal distribution of non-work obligations:

    Parenthood and household care responsibilities are more likely to fall on women, reducing cumulative working time and increasing the likelihood of income disruption due to sustained workplace exit and re-entry.

  •  Structural barriers in the workplace: Although we’re making progress towards more equitable hiring and promoting practices, large swathes of the job market remain dominated by male-majority management hierarchies. In some cases, unbalanced workplace power dynamics can constrain female opportunities for advancement to higher-earning leadership positions.

1. Start Putting Money Away as Early as Possible

Getting a head start on saving is a critical first step towards amassing a larger nest egg in your retirement years. Don’t worry, we realize that this advice will seem obvious to the vast majority of our readers. Nevertheless, our observations in this industry have indicated that a surprising number of people, despite being fully aware of the long-term value of compound interest, still underestimate the practical power of early investing.

To give you an idea of just how much of an impact that early contributions can make, take a moment to consider the parable of Jane and Sally:

Jane begins saving money for retirement at age 35, putting $500 a month in a retirement account that compounds monthly with an average annual return of 8 percent. By the time Jane is ready to retire at age 67, her retirement balance sits at $886,979.
Even though she started a little late for our liking, Jane has still done an excellent job saving for her retirement. But if Jane wants to close the retirement savings gap, she’ll need to do quite a bit better.
Sally, who earns the same amount of money as Jane (funnily enough, neither Jane nor Sally have ever experienced any fluctuations in their income), is a shrewd investor and aspires to retire with the same retirement account balance as her male colleagues.
Like Jane, Sally contributes $500 per month towards her retirement, depositing her money in a retirement account that also returns an average of 8 percent annually. However, because Sally is trying to chip away at the retirement savings gap, she starts saving for retirement at age 23 rather than age 35. When Sally finally retires at age 67, her retirement account stands at $2,429,406, a balance increase of more than $1.5 million relative to Jane’s retirement savings.

To be clear, this thought experiment (and the cliché characters within it) only tell a partial story of early-start retirement saving. To generate a more accurate projection for retirement savings, you’d have to account for management fees, return rate fluctuations, inconsistent deposit schedules, and non-uniform contribution amounts.

According to Morning Consult, only 39 percent of adults in the United States begin saving for retirement in their twenties. If you can buck this trend, you’ll be well on your way to closing, if not pushing past, the retirement savings gap.

2. Accelerate Your Retirement Savings Rate

As important as early investing is, it’s rarely enough to single handedly close gender-based disparities in retirement savings. If you want to retire with a gender equitable savings balance, you’ll also need to increase the accumulation rate of your retirement nest egg. Broadly speaking, there’s really only two ways to accelerate the accumulation phase of retirement saving: boost your annual net income and/or increase your net savings rate. 

It should come as no surprise that increasing your annual income is one of the best ways to accelerate your retirement savings rate. In addition to augmenting your employer-sponsored 401(k) account, a higher annual income also expands your capacity for regular voluntary retirement contributions. If you’re unable to negotiate a pay raise with your employer, you may want to consider supplementing your day job income with some form of side gig—this could be something easy, like driving with a rideshare company, or something more involved, like starting an online business. 

If you’re successful in securing a raise or developing an additional source of income, your next challenge is minimizing lifestyle creep and increasing your annual savings rate. Without a dedicated budget, you may find your surplus income being wasted on additional dine out meals and shopping trips. Implementing a disciplined saving strategy will help limit excess outgoings, freeing up your hard-earned cash for accelerated retirement saving. 

3. Optimize the Returns on Your Retirement Portfolio

For many Americans, male or female, the retirement saving process begins and ends with a 401(k) plan. This is a mistake. If your only plan for retirement is maxing out your 401(k) contributions, you may not only outlive your retirement savings, you may also miss out on some excellent opportunities for earnings maximization and tax liability minimization.

After maxing out your 401(k) plan, you have the option of parking your money in one or more secondary investment vehicles, each of which has varying levels of complexity, risk exposure, and return potential. Your choice of retirement investments will be heavily dependent on your current age and investing outlook. For instance, if you are still many years away from retirement, your portfolio may be geared towards high-growth assets in the equity market

With professional portfolio management, your retirement account may be well-placed to capitalize on the growth potential of undervalued equity positions. In addition to potentially optimizing your returns, a professionally managed retirement portfolio will potentially also be hedged against events that threaten the security of your retirement, minimizing your risk exposure and capping your downside.  

Are you looking for a personalized retirement plan? Visit this page to connect with a professional Capital Growth portfolio planner.

Risk Disclosure: Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results.

This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The content is developed from sources believed to be providing accurate information; no warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability or usefulness of any information. Consult your financial professional before making any investment decision. For illustrative use only.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. The Standard & Poor’s 500 (S&P 500®) is an unmanaged group of securities considered to be representative of the stock market in general. Indexes are not available for direct investment. The performance of the index excludes any taxes, fees and expenses.

Registered principal offering securities and advisory services through Independent Financial Group LLC (IFG), a registered broker-dealer and investment adviser. Member FINRA & SIPC. Advisory Services through Capital Growth, Inc. (CGI). CGI and IFG are not affiliated.

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