Retirement Savings

Closing the Women’s Savings Gap

January 21, 2020
Women face unique challenges saving for—and supporting themselves through—retirement.

Key Points

  • Women earn less than men (on average) and end up saving less for retirement as a result.
  • Women generally live longer than men, making it even more important for them to have enough set aside for a longer retirement.
  • There are several ways to shrink this gap, including budgeting, negotiating, financial education, stepping up savings, and preparing for life’s changes.

The wage and lifetime income gaps between men and women present many challenges for women preparing for retirement. “While there is progress among women saving for retirement, the gap between men’s and women’s retirement savings persists,” says Judith Ward, CFP®, a senior financial planner with T. Rowe Price. “It’s a likely follow-through resulting from lower lifetime earnings.” As a result, women are contributing less to their 401(k)s than their male counterparts, at a median of 8% versus 10% for baby boomers and 6% versus 8% for millennials.* What’s more, women typically live longer than men and will therefore need more in savings to support themselves throughout their retirements.

While the largest income and saving disparity is among working baby boomers who are on the cusp of retirement, savings behaviors among millennial women are also concerning. Unfortunately, millennials seem to be on the same trajectory as their baby boomer counterparts. In a nutshell, lower salaries coupled with lower contribution rates have resulted in lower retirement account balances. (See “The Gender Gap in Income and Retirement Savings.”)

The following tips can help women strengthen their financial footing and make more informed financial decisions.

1. Know your worth and negotiate accordingly.

Women need to value themselves and their work potential by understanding their worth, negotiating for competitive salaries, and remaining aware of the longer-term effects of underemployment. “Your starting salary with an employer is typically the anchor to which future raises, bonuses, and promotions will be connected,” says Ward. Failing to negotiate (or know what the industry pays) may result in a significant loss of potential wages during your career.

2. Buckle down and budget.

A budget, or spending plan, can provide a framework to track your expenses and accommodate your savings goals. Once you understand how and where you’re spending money, you can find opportunities to reduce expenses and increase your retirement savings.

3. Ditch the debt.

There are many reasons that women are contributing less to their 401(k)s than their male counterparts, but our research has shown that debt plays a role. Debt balances may affect women more harshly than men because their lower incomes may lead to higher debt-to-income ratios. If debt is getting in the way of you being able to save, target the real culprit first: high-interest credit card debt. Once that debt is paid off, then readdress your savings goals. Of course, keep making regular payments on lower-interest debt such as student loans or your mortgage.

4. Have money on the side.

Start an emergency fund with $1,000, then work to increase it to an amount that can cover three to six months’ worth of expenses. You can use this for an unexpected bill or to get through an uncertain period without having to tap credit cards or borrow from your retirement savings.  

5. Step up your savings rate.

If you have access to a workplace retirement plan, aim to save at least 15% of your salary, including any employer match. If 15% is too challenging, start at 6% and increase your contribution by two percentage points each year. Plans that offer automatic annual increases can make upping your contribution each year simple. “At a minimum, take advantage of any available company match,” says Ward. If you don’t have a workplace retirement plan, consider investing in a Traditional or Roth individual retirement account (IRA).

6. Prepare for life changes.

For many couples, starting a family requires sacrifice and the need for flexibility. Women have typically been more likely to take time out of the workforce or alter their careers—though there’s evidence this may be becoming more of a shared responsibility. If leaving the workforce, you can keep a foot in the door with part-time, contractual, or consulting work. Continue to network and keep your skills sharp. Keep up with retirement savings and consider a spousal IRA if you are relying on your partner’s income for the household.

7. Get comfortable with money matters.

Our survey found that within the first five to 10 years of retirement, over one-third of women (38%) were either widowed or divorced, compared with 14% of men. After 11 years of retirement, the number of widowed or divorced women increased to 49% while the number of men who were widowed or divorced barely changed (15%). Prepare for these possibilities by educating yourself so you can be more knowledgeable about your finances and investments. “Tune in to podcasts, find a favorite blogger, choose a book on finances, or use an online retirement tool to get started,” suggests Ward.

Ultimately, women need to be selfish when planning for retirement. Taking steps to improve your finances, and being intentional about earnings and savings, can position you for a more secure retirement.

*Source: 2019 T. Rowe Price Retirement Savings and Spending study.

The Retirement Savings and Spending Study is a nationally representative annual survey of workers ages 21 and above who are either currently participating in a 401(k) plan or eligible to participate and have a plan balance of at least $1,000. Along with 3,000 workers, the 2019 study also includes a sample of 1,000 retirees who had a Rollover IRA or a left-in-plan 401(k) balance.

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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