Retirement planning should be approached in a manner that takes each person’s unique circumstances into account. That includes the difference in savings accumulation that men and women often face, resulting in more women than men entering retirement without enough income.
The retirement savings gap has many causes:
- The gender pay gap results in less income to set aside.
- Women often leave the workforce to care for children as well as elderly relatives, resulting in less years spent accumulating savings.
- Women tend to live longer and need to spend more on medical care.
- The negative financial consequences of divorce tend to fall harshest on women.
- Women tend to be more risk averse when investing.
That list of setbacks may sound intimidating, but they are not set in stone. There are steps women may want to consider taking to close the retirement savings gap, many of which would be prudent for any pre-retiree to do:
- Spousal IRA. A working spouse can contribute to an IRA in the name of their non-working or low-earning spouse. The couple must file a joint income-tax return, and the contribution limit for 2017 is $5,500 ($6,500 for those aged 50 and over); these amounts may not apply in every circumstance.
- Don’t leave free money on the table. Save enough in your employer-sponsored retirement plan to receive the employer match.
- Catch-up contributions. Take advantage of the extra money you are permitted to save in retirement accounts once you turn 50. Most 401(k)s, 403(b)s, and IRAs allow catch-up contributions.
- Eliminate debt. Commit to living a debt-free lifestyle. Pay off any existing debt, then track your spending and tighten your budget to remain debt free.
- Think beyond the 401(k). Consider also saving in an IRA, to which you can contribute $5,500 per year ($6,500 for those aged 50 and over; these amounts may not apply in every circumstance). An HSA (health savings account) can also be a great way to help pay for medical costs in retirement, if you are covered by a qualifying high-deductible health insurance plan.
- Automate. Set your contributions to automatically increase every year.
Ultimately, a woman saving for retirement may need to focus on her strategy a bit more than her male counterparts, but almost everyone has the ability to save for a comfortable future. Aside from the tips above, consulting with a financial professional to formulate the best plan for you is always a smart idea.
The information mentioned in this article is for informational purposes only, is intended to provide general guidance and does not constitute legal or tax advice. Each person’s situation is unique and may materially differ from the information provided herein. You should seek the advice of a financial professional, tax consultant and/or legal counsel to address your specific needs before any financial or other commitments regarding the issues related to your situation are made. Banco Popular North America does not make any representations or warranties as to the content contained herein and disclaims any and all liability resulting from any use of or reliance on such content.