The basics of saving for retirement are well known. Start early and put away at least 10% of your income into retirement-focused accounts. But do those directions differ when it comes to gender? A strong case can be made for men and women needing to plan their retirement savings differently.
1 why women may need to sock away more savings than men
Here are two universal truths of retirement savings and why women need to sock away more savings than men.
- Clear up debt to free up more savings
Debt can cause a substantial financial burden as people plan for retirement. So eliminating debt is one of the most impactful things men and women can both focus on. The first step is to choose a debt repayment strategy, of which the debt snowball and debt avalanche are the most popular. When comparing the debt snowball vs. debt avalanche, it comes down to how you organize debt for repayment.
The debt snowball focuses on aggressively paying off the smallest loan first. The avalanche hones in on the highest-interest debt first, regardless of the amount due. The debt snowball is designed to maximize motivation by giving you a quick win. But the debt avalanche maximizes interest savings over time. Either strategy can be effective, so choose the one you’re most likely to stick with until your debt is gone.
- Focus on saving early
The early years of retirement savings are the most impactful for men and women alike. That’s because the more money you put away during your 20s and 30s, the more time compound interest is working for you. So your money will make more money when you give it more time to grow. So setting aside as much as possible in tax-advantaged retirement accounts when you’re young will be far more impactful than doing so later in life.
2 Why Women Need to Plan Retirement Savings Differently
There are a few reasons why women need to plan their retirement savings differently than men. Here’s the short of it:
- Women Are Living Longer Than Men
According to the Centers for Disease Control (CDC), in 2020, the average lifespan of a female was 80.5, while men were expected to live 75.1 years. That means women need to save more money than men to stretch their savings in the final years of life, of which they’ll have on average five more than men.
- Women Are Earning Less Than Men
Women also have barriers like wage gaps and operational gaps to overcome. Women are still earning $.85 on the dollar that men earn. These lower earnings mean less money to put toward retirement in the first place, plus less money overall going into Social Security. That translates to less financial support from Social Security benefits meaning women may not rely on it as much as men.
- Women Are More Likely to Leave the Workforce to Care for Loved Ones
In many families, women tend to slide into the caretaker role more quickly and willfully than men. Unfortunately, that means women are more likely to step away from their careers to care for children or aging loved ones for years or decades. That could again lower women’s income which means a lower Social Security benefit later in life.
To combat this, starting to save early is critical, but there are also options like a Spousal IRA to help women save comparable amounts as their spouses continue working. For married couples who file taxes jointly, a Spousal IRA is an opportunity for the working spouse to set aside an equivalent IRA contribution for a non-working spouse.
The Bottom Line
There are several reasons women need to save more for retirement than men. First, longer predicted lifespan, wage and earning gaps, and a greater likelihood of leaving the workforce to care for loved ones all put women in a position to need a giant retirement nest egg. But simply being aware of these hurdles upfront can help women start saving earlier and pay off debts to free up extra cash to funnel toward retirement.