We’ve all been acquainted with various pieces of advice on saving plans that call for us to increase the 401(k) contributions depending upon the employer’s offers and open a Roth IRA that will help us escape the taxes levied on our gains. This is true for all; however, gender plays an inevitable role in the amount of money left in hand at the time of retirement. Since women earn differently than men, they should also save differently.
The esteemed NIRS came up with the conclusion in 2016 that women who were 65 and older had a median income of $47,244, while men of the same age group possessed a median income of $57,144. The stats provided above has numerous causes. This income gap between men and women is so because women receive social security benefits differently. Furthermore, they earn less and live longer with more expenses throughout their lives. This article will explore all the causes of this financial gap and how women can help themselves in this area to have a smooth ride throughout their later years.
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The major Causes for Retirement Gap
The primary reason and source of concern are that women earn less than men, hence saving less. Not only this but there are other factors at play as well. Women are still primarily considered caretakers before they are considered to be money earners. This causes them to stop working full-time and to take more leaves of absence. To support this statement, statistics say that childless women earn 28% more than women with even a single child. This inevitably results in lower retirement savings since women can take smaller social security benefits.
Talking about social security, there are various other areas to focus on here. First, it is important to stay clear that your social security is based on your financially best 35 years. This technicality usually proves to be against women since they have less high-earning years. Secondly, among this pool of low earning women, there is another condition that women with children receive even fewer benefits. The formal sector is still biased against women who inescapably have to take career breaks. Likewise, women are more often engaged in part-time work or less high paced work environments due to various socio-economic causes. They then end up earning less and receiving decreased benefits. Last, of all, the life expectancy of women is more than men. This means that whatever savings they manage to do gets used up in the formative years of their retirement, leaving them struggling as they age even further.
Role of women in bridging the gap
To help themselves, women need to be more educated about the discrepancies between retirement savings earned by them and by males. There are a few measures that women can take to either completely correct or shorten these discrepancies. In the very first place, women can delay their social security collection. Although social security benefits can be easily collected at the age of 62, women should hold it off until 70. It has been found that the benefit increases by 8% every year after you cross the full retirement age.
Spousal social security is another way for women to compensate for their low-income benefits. However, to take maximum benefits, the couple must wait before reaching the full retirement age. Women whose spouse earns significantly more than them will automatically be eligible to receive spousal social security, which can be as high as half the benefit received by their partner. At any rate, this is only practically possible if the couples don’t make any undue haste in collecting their benefits before full retirement age.
In addition, it is also advisable that women allocate more of their retirement contributions in the formative years. However, they shouldn’t slack off once they enter motherhood. Although the process slows down, it shouldn’t stop altogether. Moreover, women should vigilantly use a Roth IRA to optimize their retirement savings. Women should look for companies with minimum monthly fees and are specifically focused on helping women.
Role of policy solutions
It can not be denied that however informed a woman is in terms of her work rights, and she can not go above and beyond the policies of her workplace. In such a scenario, new and improved policies must be brought forward those favour women. One such proposed policy is the Caregiver credit for social security. This revolutionary policy aims to give monetary value to the task of caregiving. Under this, a particular value will be assigned to the hours spent by a worker. This shall then help them be compensated by calculating their social security benefits accordingly.
All in all, women need to be witty when dealing with their retirement plans. They shouldn’t feel the need to compromise their duties in the workplace or at home. Companies too should be considerate and try their best to narrow the difference between pay received by men and women.