- 62% of working men versus 51% of working women say retirement is a financial priority right now.
- Among workers who participate in a 401(k) or similar plan, men contribute 10% (median) of their annual pay compared to women who contribute 6% (median).
Not only do women put less of an emphasis on making retirement saving a priority, those who do save for retirement are saving a much smaller proportion of their paychecks than their male counterparts. The situation is worsened by the fact that a gender wage gap still exists, and that women often take time off work to raise a family or care for a loved one—less common the case for men.
What can you do to close the gap in retirement savings?
Women can get off to the right start if they begin saving and investing as soon as they land their first job, whether it be through an employer-sponsored retirement plan or some other retirement savings vehicle such as an IRA, Roth IRA, or SEP IRA.
The chart is an example of how much you will have saved by age 55, assuming a 5% investment return and $10,000 yearly contributions starting at age 25 compared to starting at age 35.
Let’s take a look at the two examples in the chart:
- Mary saves $10,000 in her retirement plan every year, beginning at age 25 and ending at age 55. Her rate of return is 5%. She will have $666,447 by the time she reaches age 55.
- All else being equal except that Mary begins saving at age 35, she will only have $331,923 by the time she reaches age 55.
Like Mary in the first scenario, by starting 10 years early, your money has the potential to more than double compared to if you begin to save and invest at the later date.
Time is on your side!
Take an Adequate Amount of Investment Risk
Saving alone is not enough. Women need to invest their money in instruments with the potential for higher return (e.g. mutual funds, ETFs, stocks) to fully benefit from both “time” (discussed above) and the concept of “compounding.” Let’s look at Mary again:
In scenario #1 above, if Mary did not invest her savings, opting instead for instruments (e.g. Certificates of Deposit) with guaranteed 1% rate of return, she would only have $347,982 by age 55, much less than the $666,447 in the outcome above!
Be sure to take the appropriate investment risk based on your time horizon, goals and your attitude toward gains and losses. Reaching out to work with a financial professional is one way to get a perspective, prior to investing.
Automating your investing, whether it be a certain dollar amount or a percentage of your paycheck every week, month, etc. is a discipline that can be rewarded over the long term. By investing automatically over time, you are not “timing the market” and buying a lump sum at one price. Rather, you are investing smaller amounts at varying prices, whether the market is high or low; a concept called Dollar Cost Averaging. The average paid over the long-term can oftentimes be less than current market value.
Also, don’t forget to set aside portions of bonuses and tax refunds for longer term savings.
Evaluate on a Periodic Basis
Review your retirement accounts semi-annually to be sure that you are on track to reaching your goals. Look at account performance and investments, and assess whether you can increase your savings rate, especially after a raise in pay. If you max out your annual retirement account contribution (e.g. $18,000 for a 401(k) in 2017), you can continue to save and invest in a non-retirement account. In case you begin to save later in life, there is also an annual “catch up” contribution allowance if you are over the age of 50. The amount varies depending on which type of retirement plan you are contributing to, but for 2017, you can save an additional $6,000 in a 401k plan.
Unfortunately, many women, unlike their male counterparts, continue to face an unlevel playing field in terms of pay, primary caregiving expectations, and numerous other circumstances. However, the way they choose to approach saving and investing for retirement can create equal opportunities for success.
Christina Castrejon is a Wealth Advisor for Calamos Wealth Management, headquartered in Naperville, Illinois. She brings more than 10 years of experience in providing comprehensive wealth management services to affluent individuals and families in the greater Chicagoland area. The firm can be contacted at 888-857-7604 or CalamosWealthManagement@calamos.com. Website: www.CalamosWealthManagement.com.
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Calamos Wealth Management LLC), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Calamos Wealth Management LLC. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Calamos Wealth Management LLC is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.