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Closing the Retirement Gender Gap: 3 Steps All Women Should Take

Rita Williams, The Motley Fool

The gender gap doesn't end at paychecks. It extends all the way into retirement. While women are participating in the workforce more than ever today, only 12% are "very confident" that they can retire comfortably, according to the Transamerica Center for Retirement Studies. But 24% of men, double the amount of women, are very confident they can do so.

Unfortunately, women have reason to feel less confident than men do about their retirement security. The median retirement savings for women is currently $42,000; for men, it is three times as much: $123,000. While 20% of women report that they have a retirement nest egg of $250,000, significantly more men (38%) have socked away this amount. Plus, there are more than twice as many women with quite little saved for retirement, with 21% of women having less than $10,000 set aside for retirement, while only 12% of men report having this little saved.

Women thinking about money bags.

IMAGE SOURCE: GETTY IMAGES.

In part, these retirement saving disparities reflect the continuing wage gap between men and women. On average, women earn $0.81 for every $1.00 earned by a man. Certain demographics like black women and Hispanic women make even less, earning only about $0.50 for every $1.00 a man earns -- half! 

But there are other factors at work as well, and for women to enjoy their golden years, it will help to understand why they're so far behind men when it comes to saving.

First, women are more likely than men to take time out of the workforce or work part-time in order to raise families. During those periods, they may not be earning at all, or earning less than they are used to.

Second, women live longer than men on average, according to the U.S. Centers for Disease Control. The average life expectancy is currently 81.3 for women and just 76.5 for men. So not only do women earn less than their male counterparts, and have periods of limited or no earnings that most men don't experience, but they also must stretch their retirement savings over more years.

And of course, there's the pink tax, which means women often pay more than men for the same products, and the long list of expenses women outlay over their lifetimes for things men seldom buy (think hair coloring, feminine products, cosmetics and much more).

Earning less over fewer working years has a secondary impact of shrinking the amount of Social Security benefits that women are eligible for, as Social Security is based on a worker's 35 highest-earning years.

Fortunately, there's one way women can start closing the retirement gender gap: by making sure their own retirements are secure and rewarding. Here are three steps every woman should take for her retirement.

1. Prioritize retirement savings more

It's not that women aren't saving for retirement. They think about retirement and expect it, although at a lesser rate than men do; 45% of women expect to fund their retirement through savings, while 52% of men do.

More women also expect to rely on sources other than savings in retirement. Thirty-three percent of women expect Social Security benefits to be their main retirement income source, but only 23% of men plan to depend primarily on Social Security. And 16% of women think working during retirement will be their main source of income, while 12% of men have this plan.

To start closing the gender gap in retirement savings, women can shift their financial priorities. Nearly 70% of women name paying off debt as a main priority. While debt service can be necessary, it may be prudent to carve out part of the monthly amount that goes toward debt and instead, save it for retirement. Using a retirement savings vehicle that invests your savings will make your money compound over time and give you tax advantages.

It's also a good idea to consider retirement benefits as a crucial part of any employer benefits package. Only 66% of female employees are offered a 401(k) or similar retirement plan through their workplace while 75% of males are. It literally pays to proactively search for companies that offer a 401(k) plan, and to ask about its mechanics, like an employer match, when negotiating a job offer.

2. Participate in retirement savings plans

Currently, 73% of women participate in either 401(k) plans or Individual Retirement Accounts (IRAs), compared to 82% of men. Among employees who have access to 401(k) plans, 77% of women contribute, while 84% of men do. On average, women contribute just 7% of their annual salary, and men contribute 10%.

Before you can increase your contributions, you must first open a retirement savings account. It's extremely important to funding your retirement, for several reasons.

First, Social Security is highly unlikely to cover all your retirement needs. The average monthly Social Security benefit is $1,461, which is estimated to meet about 40% of a retiree's income before retirement. The remaining 60% has to come from somewhere else, like savings.

Second, employer-sponsored 401(k)s can actively help you save more for retirement. Many companies and employers will match your retirement account contributions, usually between 50% to 100% of your own contribution. In other words, if you contribute 6% of your pre-tax income to a 401(k), and your employer offers a 100% match, they will add the equivalent of an additional 6% of your salary into your 401(k), a rare instance of free money.

Third, both 401(k)s and IRAs allow you to invest in a range of investment classes, from stocks, to fixed-income investments like bonds and bank certificates of deposit (CDs). Historically, the stock market returns 7% per year, significantly more than any other type of asset.

Lastly, both 401(k)s and IRAs have potential tax advantages, which can put more money in your pocket. Your 401(k) contributions are taken out pre-tax, before your employer withholds money from your paycheck for income tax. In other words, you don't pay tax on the money you sock away in a 401(k) until you withdraw it in retirement.

Contributions to a traditional IRA can be deducted from your income in the year you make it, up to $6,000 per year ($7,000  if you're 50 or older). Roth IRA contributions don't provide a tax deduction in the year you make them, but withdrawals from a Roth IRA are not taxed at all in retirement, whereas withdrawals from traditional IRAs are taxed at your ordinary income rate in retirement.

In short, anything women can do to establish retirement savings plans, regularly contribute to them, and reap their tax advantages will increase their stability and security in retirement.

3. Develop a specific retirement strategy

It's always best to have a firm retirement strategy. Rather than vaguely speculating about retirement, take the time to write down what you want to do. Think about what you need to get there, then jot down the differences between where you are now and where you need to be then. Developing an outlined strategy for yourself is key to becoming more financially secure.

Your plan never has to be set in stone, and you may even revise it every year. Periodically, you need to look at how you're doing, or else you run the risk of not knowing whether you have enough saved for your timeline.

Many Americans believe that $500,000 saved by retirement is sufficient to feel financially secure, but a majority of women (55%) arrived at this figure by guessing -- only 39% of men guessed. There are multiple ways to estimate the total savings you'll need, so familiarize yourself with some retirement rules of thumb.

Broad gender gaps take lots of time and good policy to start narrowing and eventually close. It's high time to eliminate the gender-based disparity gap in retirement, and you can start by making sure you're comfortable in retirement, and confident about your ability to get there.

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