Each edition of this Women Entrepreneur series, Behind the Numbers, presents a stat about a disadvantage women face at work and in business, examines the dynamics at play and provides guidance to help women overcome obstacles.
The gender pay gap is an issue that comes up often, but the gender savings gap is just as troubling. Women are less likely than men to participate in their workplace 401(k) plans, and those who do tend to save less than their male counterparts, a T. Rowe Price survey found.
The average woman’s 401(k) balance among those surveyed was $38,000, while the average man’s was $74,000. Women contributed an average of 7.2 percent of their annual salary to these retirement plans, compared to men at 8.4 percent.
T. Rowe Price found that both men and women who were eligible to save but opted out of their 401(k) made less money and had more student debt — and that women made up 68 percent of that group. The median income of men and women who did not participate in their savings plans was $28,000 (with a median student debt of $22,000), versus $57,000 who were participating (with a median student debt of $16,000). Furthermore, just above 40 percent of both income groups had a four-year degree, ruling out education level as a savings indicator.
Whether you’re saving through a 401(k) plan or an IRA (individual retirement account), automate the process as much as you can. Don’t rely on yourself to manually contribute — in a financially tight month, you might be tempted to forego your contribution, or you might just forget. “Whatever we can do to help nudge our behavior in the right direction, I think is fantastic,” Ward says. If you’re opposed to the idea of automating your contributions, or if your income is too sporadic to do so (shout out to all of the self-employed women), you can at least automate your reminders. Use calendar alerts, Amazon Alexa or another tech platform, Ward says.
Along with the idea of automating is making your financial literacy part of your routine. If you have a busy schedule, queue up some personal finance podcasts while you exercise or commute. If you’re already in a book club, maybe float the idea of reading and discussing a book on finance, turning it into a financial support group of sorts.
3. Crunch the numbers.
While this isn’t a one-size-fits-all calculation, many young women just starting out with saving may find this breakdown from Ward helpful:
Start by saving 6 percent of your salary — including the amount your company pitches in, if it offers matching. Then, try to increase the amount you’re saving by 1 percent each year until you reach 15 percent of your salary.
If this breakdown doesn’t work for you, do a Google search for free retirement planning calculators and plug in your income and expectations into a few of them. This will give you a sense of what you should be saving to be on track.
“I wouldn’t get too discouraged if the numbers come up that say, oh you need to be saving 50 percent of your paycheck or something,” Ward reassures. Consider the results directional, and a concrete, numerical alternative to the vague “save for retirement” directive many women hear despite not knowing where or how to start.
4. Break it down into smaller steps.
Chances are, you already may be paying off some student loans, but don’t view all debt as an excuse not to save. “I would hate for someone to wait until their student loan debt is paid off — that could be like 10 years — before they start thinking about how to start investing for retirement,” Ward says. Look at your repayment options and see if you can afford minimum payments plus retirement investments, and don’t get overwhelmed by your total sum of debt. Just be mindful of debt interest rates and think about paying off high-interest debt (e.g. credit card debt) before anything else.
Regardless of what other financial obligations you’re balancing, take it month by month and think about, “What am I going to achieve this year? What am I going to do in the next six months?” Ward says. Pay down a bit and save a bit, little by little.