3 Essential Money Lessons for Career WomenMarch 8, 2019 Judith Ward, CFP®, Senior Financial Planner
- An income gap can become a lifetime savings gap, particularly for women, who may be making less and therefore saving less for retirement than their male counterparts.
- Women face unique challenges as they live longer than men and more women than men enter retirement as divorced or separated.
- It’s important for women to constantly evaluate, throughout their lives and careers, where they are financially when it comes to planning for retirement.
The gender pay gap has been a hot topic in recent years, and there is no denying the difference in pay; women generally earn 80 cents to every man’s dollar. Recent research from T. Rowe Price highlights the impact women face from lower lifetime earnings, as well as the resulting challenges that arise, along with the fact that women generally live longer than men. Put another way: Women are starting from behind yet have a longer race to run. So it’s important for women to constantly evaluate where they are financially because they will need to save for a longer retirement.
1. An early career lesson: A gap in income can become a lifetime savings gap.
According to our recent survey, the median personal income for millennial women is $56,000—almost $30,000 less per year than millennial men. The study also found that women are contributing less to their 401(k)s (a median of 5% of salary) than their male counterparts (8%).
These two factors severely impacted survey respondents’ 401(k) balances, as millennial women had nearly 70% less money saved in their 401(k)s when compared with their male peers—with a median account balance of $12,300 compared with $42,300.
The takeaway: Know your worth and negotiate accordingly.
Women value education because it may help them achieve higher-paying jobs throughout their careers. Women also need to value themselves and their work potential by understanding their worth, negotiating for competitive salaries, and not settling for underemployment.
Sure, this is all easier said than done. The first salary you receive is the anchor to which all future raises, bonuses, and promotions will be based. Failing to negotiate or know what the industry pays may result in a significant loss of potential wages over the course of a career. This is the time to get on secure financial footing. Develop a plan to save for retirement while paying down debt.
2. A midcareer lesson: Prepare for an earnings plateau.
Interestingly, our survey found that the income gap closed a bit for Generation X. The median personal income for Gen X women was $71,000 compared with $83,000 for Gen X men. Women also accumulated more money in their 401(k)s—a median account balance of $66,000 compared with $73,000 for men. And Gen X women’s contribution rates to 401(k) plans were a median of 6% of their salaries compared with 7% by their male peers.
Typically, midcareer is when men and women enter their peak earning years. It’s important for women to seek opportunities to advance their career. At the same time, this may be when most couples decide to start a family and some women may leave the workforce to raise children. For women staying in the workforce, there’s often a desire to maintain that work/life balance. Sounds serene, doesn’t it? If only!
The takeaway: Weigh the trade-offs when considering life changes.
Generally, women’s earnings plateau at midcareer. It could be due to many factors: job choice where wages have limited upside potential, time out of the workforce to raise children, or altering careers to take on the “kid duties.” Prepare ahead of time by reflecting and having honest discussions with your partner on career wants, company benefits, and how sacrifices will be shared.
Consider employment with companies that offer family-friendly benefits if more household flexibility is needed. If you’re leaving the workforce, continue networking and sharpening your skills so it’s a smoother transition when you return to work. Last, keep up with your retirement savings. It’s an important discipline to continue. Keep contributing to your workplace retirement plan or an IRA. Consider a spousal IRA if you are relying on your partner’s income for the household.
3. A late-career lesson: Retirement savings will have to last for decades.
The largest gender disparity in income and savings from our research is with working baby boomers. The median personal income for working boomer women was $61,000 compared with $103,000 for boomer men. Boomer women survey respondents cited significantly less money saved in their 401(k)s—a median account balance of $59,000 compared with $138,000 for boomer men. And boomer women were contributing less of their salaries to their 401(k)s—a median of 7% compared with 10% for men.
There may be many reasons for this disparity that accumulates over the span of women’s careers. This difference may not be as problematic as it might seem if, as a household, there is adequate income and retirement savings. Here’s the catch—women live longer than men, and more women enter retirement divorced or separated compared with their male counterparts. According to our survey, after 11 years or more of retirement, almost half of women (45%) were widowed or divorced compared with just 18% of men.
The takeaway: For the first time, put yourself first.
Women need to be selfish when planning for retirement. At some point, whether we choose to or not, we may be flying solo. If you’ve put other people or priorities first for many years, now is the time to prioritize what you need to be secure in retirement. This means having regular conversations with your partner and with your financial advisor (if you have one).
Retirement may be just around the corner, and it’s important for you and your partner to start visualizing your retirement together and share an understanding of the household’s full financial picture. If working with an advisor, be present in those conversations and make sure he or she is helping to meet your needs.
Take into account all potential sources of retirement income, especially Social Security. It’s important to coordinate when to start taking benefits in order to maximize the amount for a surviving spouse.
Women do face unique challenges as we navigate our lives and careers. Being more intentional about earnings and savings over time can help position us for a more secure retirement.
This material has been prepared by T. Rowe Price for general and educational purposes only. This material does not provide fiduciary recommendations concerning investments, nor is it intended to serve as the primary basis for investment decision-making. T. Rowe Price, its affiliates, and its associates do not provide legal or tax advice. Any tax-related discussion contained in this material, including any attachments/links, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any tax penalties or (ii) promoting, marketing, or recommending to any other party any transaction or matter addressed herein. Please consult your independent legal counsel and/or professional tax advisor regarding any legal or tax issues raised in this material.
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