Saving money like a man
In the 1930s, Ginger Rogers beautifully synchronized her dancing in lockstep with Fred Astaire's footwork. Only, as the saying goes, she did it backwards and in high heels.

Unfortunately, when it comes to retirement planning, women face a similar challenge: a set of gender-specific financial obstacles that require more intensive efforts to overcome.

Here's a look at these retirement savings challenges, and what women can do to avoid getting tripped up by them.

The $849,000 Gap

There are three main factors that make it harder for women to save enough for retirement:

1. Longer life expectancy. Women live longer than men -- statistically, five years longer on average. According to 2009 data, life expectancy for a woman is nearly 81 years compared to almost 76 years for a man.

2. Taking more time off work to care for family members. Leaving a job to provide care for a child or elderly relative falls predominantly on women. "The average woman left the workforce for 11.5 years -- not always all at once -- to care for children, elderly parents, and a chronically ill spouse," according to a 2001 report titled "The State of Older Women in America."

3. Less pay for equal work. On average, a woman is compensated $0.77 on a man's dollar, according to a recent study from the Institute for Women's Policy Research based on 2011 U.S. Bureau of Labor Statistics.

So just how much are these disparities costing a woman in terms of her retirement planning? All told, add up these costs over a lifetime, and we're talking about an $849,000 penalty for being born female.

If a woman entering the workforce today lives five years longer than a man, takes four years out of the workforce to care for loved ones, and makes an average of $30,800 per year (77% of his $40,000 annual salary), then she needs to save roughly $4,000 per year (before taxes) during the course of her working life toward retirement. In comparison, he needs to save $3,080 per year (before taxes) over the course of his working life. That works out to nearly 13% of her annual salary, as opposed to 7.7% of his.

Fair? No. Reality? Yes.

These disparities make it critical for women to understand their retirement planning options and to take steps now to narrow the savings gap. Here are some options:

If You're a Working Woman:

  • If it's offered through your employer, take advantage of the 401(k) or other employer-sponsored retirement plan -- such as a 403(b) or 457 plan. The contribution limits are generous, and any dollar you contribute is one you don't pay in taxes.
  • Many employers offer a 401(k) match. A match is like free money, so contribute at least the amount you need to receive the full match from your employer.
  • Know your employer's vesting schedule. This spells out what percentage of your retirement plan match you can take with you if you leave your employer. By knowing your employer's vesting schedule, you can plan time out of the workforce while maximizing your benefits. Women who join and then leave the workforce without knowing their vesting schedule may be giving up hard-earned dollars.


If You're Married, But Don't Work:

  • A spousal individual retirement account is a regular IRA account; it's just called that to describe how you can make an IRA contribution even if you have no taxable income.
  • Stay-at-home moms (or dads, for that matter) can save for their retirement if their spouse has earned income. You don't need to have earned any money yourself to save for retirement -- in fact, you can contribute up to $5,000 in it so long as you meet the requirements.
  • In order to make a spousal IRA contribution, you must be married and file a joint tax return. Also, the working spouse has to have earned more income than the amount of the contribution.

If You're Self-Employed:

  • American women own 30% of small businesses. If you're a small business owner then don't overlook the retirement plan options available to you.
  • Look into a SEP IRA, a retirement plan designed to benefit self-employed people. The potential amount you can contribute far exceeds the amount you could as a non-self-employed person. An added bonus: Contributions you make to a SEP IRA are generally 100% tax-deductible to your business and, like other retirement accounts, investment earnings in a SEP IRA grow tax-deferred.

Get a handle on your finances so these disparities don't prevent you from dancing your way into a glorious retirement.

Motley Fool contributor Nicole Seghetti does not own shares in any of the companies mentioned above. You can follow her on Twitter @NicoleSeghetti.


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12 Comments

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klbhatt

Housing, whether it be peak mortgage or HUD, is a viable fixed rate solution, not alternative especially when there is none as HOH. Tto effectively use a variety of funds, from inheritance to welfare, with self-sufficiency success skills that can be taught to grade A's & AP's & the like, people have to acknowledge the sheer adulthood responsibility in life. I don't see where men have necessarily understood any of these factors, married, divorced, child-obliged, or otherwise busy.

August 17 2012 at 1:30 PM Report abuse rate up rate down Reply
Tiffany

You owe it to yourself to research a concept known as Infinite Banking. The government, banks and Wall Street don't want you to know about this which is all the more reason you should check it out. You can get some info at www.thePrivatizedBankingMovement.org

July 26 2012 at 12:13 PM Report abuse rate up rate down Reply
redmondconstruct

Many women will not earn $849,000 after a lifetime of working. How do they manage to survive AND pay that "extra" amount?
The numbers are false!
Men pay the same rates into social security, but only live long enough to collect for 66% of the time that women do. When the men die, their wife is still able to collect from what the man payed

July 25 2012 at 12:19 PM Report abuse rate up rate down Reply
JOSE-USMC-0311

MOST IMPORTANT ---SAVE-SAVE-SAVE.

July 25 2012 at 12:12 PM Report abuse rate up rate down Reply
JOSE-USMC-0311

MY PERSONAL ADVISE FROM EXPERIENCE....DON'T LET FANCY CARS AND TRUCK PUSH YOU INTO BUYING ONE. THE FINANCING RATE WILL RUINED YOU. BUY A USE VEHICLE.

STAY AWAY FROM CREDIT CARDS-----BUY USE , NEVER BUY NEW..

MOST IMPORTANT WHEN THE TIME COMES TO BUY A HOUSE ?? MAKE SURE YOU BUY IT IN A TOWN WITH GOOD SCHOOLS FOR YOUR KIDS AND NEVER--NEVER--NEVER REFINANCE. REFINANCING WILL RUINED YOU AS YOU GET OLDER. MAKE SURE YOU HAVE THE HOUSE YOU ARE HAPPY WITH SO YOU DON'T HAVE TO SELL AND MOVE...WHEN YOU ARE 55 --60 THE HOUSE SHOULD BE PAID FOR.

FOLLOW MY ADVISE AND YOUR LIFE WON'T BE RUINED WHEN YOU REACH THE AGE OF 55--65. THERE IS NOTHING LIKE HAVING YOUR HOUSE PAID WHEN YOU RETIRED.

July 25 2012 at 12:09 PM Report abuse rate up rate down Reply
Loren

A man's idea of saving money is putting money in the bank or investing it. A woman's idea of saving money is a 50% off sale at Macy's.

July 25 2012 at 11:19 AM Report abuse rate up rate down Reply
lawheadhunter

STILL the left is giving us this flat out LIE that women make 77 cents on the dollar for what men make. These BS "studies" by the "Institute for Women's Policy Research" (Yeah I'm sure THEY don't have an agenda) conveniently disregard that men work more hours, work night shifts, typically have more seniority, and are more willing to do dangerous and unpleasant jobs. Logically follows that men would earn more. Not BECAUSE they're men but because they work more hours, have more seniority, do unpleasant tasks, etc.

Also, if this coast to coast gender pay discrimination exists, where are all the class action lawsuits? Certainly there is no shortage of lawyers to take this cash cow. Also, in this incendiary, PC climate in which we live and work, how would any corporation get away with this? "It is our policy here at IBM to pay men 23% more than women." Yeah right.

Still not convinced? Ok, then how bout this. If women TRULY earned 77% of what men earn for working the same hours at the same job, men would be priced out of the market. Seriously, why would you ever hire a man? I'm a business owner and I can hire all men for a yearly payroll cost of a million dollars a year...OR...I can hire all women for 770,000. That's 230,000 PER YEAR that is going straight into my pockets. Anyone who honestly thinks that anyone would put discrimination against women as a higher priority than their own personal fortune is a liberal, I mean moron.

So please. Next time you hear this "gender pay discrimination" nonsense, grow a brain and come to the fast and obvious conclusion that it's a flat out lie.

July 25 2012 at 9:34 AM Report abuse +2 rate up rate down Reply
1 reply to lawheadhunter's comment
SPQR

Well put !!! Of course the women are after more money. 2 years ago women in Chicago were making $5,000 more than men on average.

July 25 2012 at 9:54 AM Report abuse rate up rate down Reply
dc walker

I've worked since I was 16....Went back to college when I wa 25 because I realized if I didn't I would always be low income......I took a higher paying job when I graduated, stashed money away, and stopped buying junk and stuff that I knew in five years would just be junk to dust....Making money is great, investing it is better; I just wish that every month I purchased a little gold and stuck it in a bank vault. Retired in good status although the government insists on reducing the value of the dollar.

July 25 2012 at 8:39 AM Report abuse rate up rate down Reply
Rhianon

Okay now do this article on women that make less than $10.00hr. What retirement? We can't even live paycheck to paycheck...let alone stick back for retirement. Geeeez...........

July 25 2012 at 3:39 AM Report abuse rate up rate down Reply
1 reply to Rhianon's comment
redmondconstruct

A man making less that $10 / hr is no better off.

July 25 2012 at 12:13 PM Report abuse rate up rate down Reply
sallyanncohen

All women should always have job skills so that hey can work while they are married. If children are desired then special planning needs to be done so that one income is secure. Maintaining your own checking account and listing all assets and liabilities is a must. Women should not depend on any man for their retirement and must plan on living longer than their spouses, Save and save and save; buy used cars; consider not having children; and don't loan money to relatives. I did my own retirement while working and know that even now I need to save. This is especially true with the Obama medical takeover which will mean that each of us must have money set aside for medical care possibily even outside this country. Don't have locked on line financial accounts which cannot be accessed if one person passes away. Don't rely on any financial planning person - do your own research. Do a pre-nup if you have substantial income.

July 25 2012 at 1:50 AM Report abuse rate up rate down Reply