Women are still falling behind in retirement savings; how to catch up, especially if you're over 50

This article is reprinted by permission from NextAvenue.org.

You're probably familiar with the Census Bureau statistic that women are paid 82 cents compared with every dollar paid to men, but are you aware that a financial gap persists even after men and women exit the workforce for good?

Women's retirement contributions are, on average, 30% less than those made by men, according to a recent Goldman Sachs GS, +2.29% survey of 1,566 adults.

That gender savings gap is compounded by the fact that women live longer than men, which means they must stretch their retirement savings further. According to the Centers for Disease Control and Prevention, American women, on average, live almost six years longer than American men.

'The longevity gap can create real challenges for women as they age,' said Cassandra Smalley, CEO of Cassandra Smalley Wealth Management in St. Petersburg, Florida. 'Women are much more vulnerable to poverty than men as a result of living longer, and they face a multitude of challenges in overcoming various wealth gaps.'

It doesn't take a math genius to calculate that women's longer life expectancy and lower earning potential adds up to having less disposable income to put toward retirement savings.

Unfortunately, many women approaching retirement age are simply unprepared financially for the years ahead. Of 2,500 women surveyed by Bank of America BAC, +2.00% for a February 2022 report, only one-third said they were 'doing well' when it came to saving and paying for retirement. One in five women approaching retirement age said they didn't have a financial plan.

While saving for retirement presents unique challenges for women due to their gender, identifying those challenges is the first step to overcoming them.

Because women are usually the primary caregivers of both their children and older family members, they end up leaving work more often to focus fully on taking care of their families. Unfortunately, this means they have fewer years to contribute to employer-sponsored retirement plans.

According to Lorna Sabbia, Head of Retirement and Personal Wealth Solutions at Bank of America, work disruptions like these have a substantial effect on women's lifetime earning potential.

'When combining these workplace interruptions with the lifelong pay gap, by retirement age, a woman may have earned $1,055,000 less than a man who has stayed in the workforce,' Sabbia said.

Fewer years in the workforce can also spell smaller retirement benefits like Social Security, of which 15% of older female recipients rely on for more than 90% of their income. Additionally, if you stop work before you start receiving benefits and have fewer than 35 years of earnings, your benefits are reduced, according to the Social Security Administration.

Another factor inhibiting wealth-creation by women is the fact that only 62% of women ages 57 to 75 invest outside of retirement, according to a Fidelity Investments survey of 2,400 adults in July 2021.

While interest in investing is growing among women of all ages, having less disposable income and entering the stock market later in life can be scary for new investors.

If you're considering investing for retirement, Kari Lorz, certified financial education instructor and founder of Money for the Mamas recommends a slow and steady approach that doesn't overlook other expenses.

'If time isn't on your side, you should still invest, but actively manage your large expenses — housing and insurance,' Lorz said. 'These two costs have the biggest impact on your outgoing funds. If you can get these as low as possible, through house sharing and potential part-time work with insurance, you will save a lot and make your savings go further.'

The financial cost of divorce

Divorce is painful for everyone involved but it's more financially costly for women, especially if the divorce takes place after age 50.

According to research by Dr. Susan Brown, a Bowling Green State University sociology professor and co-director of the National Center for Family & Marriage Research, 27% of women who divorce after 50 are living in poverty by 63, compared with just 11% of men of the same age who divorce after 50.

This is due, in part, to regulations that forbid anyone to share in his or her ex-spouse's Social Security benefits unless they were married at least 10 years and do not marry again before 60. Lowering the 10-year threshold by even a few years would 'substantially' reduce the number of low-income divorced women living in poverty, according to a recent study.

If you're considering a divorce, secure your financial future by having your assets independently appraised and putting together a post-divorce budget.

The gap in financial literacy

Financial literacy is the foundation for good retirement-savings strategies, but only one in four women queried by The American College of Financial Services said they feel knowledgeable about retirement planning. The survey appears in the Women's Retirement Literacy Report.

Nicole Zheng, chief marketing officer of Pontera, a fintech company helping people retire better, suggests that if you don't know where to start preparing for your retirement, hiring a professional is the best way to get up to speed.

'We can't overlook that women are busy. They are often shouldering more at-home chores and child care on top of their professional careers,' Zheng said. 'Nearly one-third of Americans have a financial adviser who can help them best plan for their retirement goals.'

How to prepare for retirement after 50

If you haven't put considerable thought toward your retirement plan, today is the best time to start. Following are tips frequently offered by financial planners:

Take advantage of new laws

When you sit down to discuss your financial future with an adviser, ask if you are eligible for catch-up contributions.
'Catch-up contributions allow individuals ages 50+ to bypass limits on the amounts they may contribute to retirement plans and make ‘catch-up' contributions to increase their retirement savings,' Lauren Wybar, Senior Wealth Advisor with Vanguard Personal Advisor Services said.
Thankfully, for women who've fallen behind in their contributions, the Secure Act 2.0, which President Biden signed in December 2022, will increase the catch-up contribution limit for plan participants who reach ages 60 to 63 by the end of the tax year in question, starting in 2025.

Save, save, save

Create a financial retirement road map that includes a timeline for your retirement, including how you will address debt elimination and savings between now and your retirement date.
Women should prioritize paying off monthly expenses and debt that accrues interest — credit-card debt, for example — before setting aside a percentage of their income for savings and investments. According to Sabbia, 10% is a good target, but every little bit counts.

'They should create a plan that matches any unique circumstances, revisit it often, and make course corrections along the way,' Sabbia said.

Make your longevity an asset. Women should plan for retirement early and take advantage of tax-efficient and employer-sponsored savings plans such as a Health Savings Accounts or 401(k), in order to be eligible for the employer match.

Sabbia stated that if possible, Sabbia encourages women to work longer hours and maximize their Social Security and Pension benefits. The power of time can be a valuable asset if you have the means to do so.

Invest wisely

A low-risk, diverse portfolio is a great way to generate additional income long into retirement. It also provides a pathway for wealth growth once you are retired. You don't have to wait until retirement to invest, but it is better to get started sooner than later.

Sabbia advises that newcomers start by learning the basics. She said that investing doesn't need to be complicated; building confidence starts with understanding the basics.

You can have an exciting, active and fulfilling retirement tomorrow if you plan and concentrate today.

Rachel Leland, a Houston-based freelance journalist covering personal finance and wellness as well as other topics related to lifestyle.