How The Gender Wage Gap Can Affect Your Retirement
When you hear the phrase “pay gap,” the figure 78 cents likely comes to mind. While the fact that women earn 78 cents to a man’s dollar is still an unfortunate reality, there’s a figure that possibly even more alarming: $418,800.
That’s the amount a woman loses over a 40-year period in her income due to the gender pay gap, according to the National Women’s Law Center (NWLC), a nonprofit legal and advocacy group. Or, as Reuter’s columnist wrote, “the typical woman needs to work 11 years longer than a man to achieve accumulated income parity.” Combine that with a woman’s longer average lifespan, among other unique factors (like leaving the workforce), and this gender pay gap can have a huge impact on retirement.
While we all hope that this gender wage gap will get closed as quickly as possible, there are some steps women can take in the meantime to ensure it doesn’t affect their retirement:
Make Catch-Up Contributions
According to the IRS, if you’re 50 or older, you can contribute additional money to your tax-advantaged accounts, allowing you to enjoy more tax-free growth towards retirement. For 2016, this includes an extra $6,000 for 401(k)s. For IRAs, this is an additional $1,000.
Even if you can’t make the full catch-up contributions (or you aren’t over 50 yet), take full advantage of the power of these accounts. Even though you can’t contribute those extra few dollars, you do have the advantage of extra time: If you maxed out these accounts yearly at 25, you’d be a millionaire by 43, according to NerdWallet. That’s because compound interest (interest added to your principle investment) snowballs to create immense value over time. It’s often referred to as the “eighth wonder of the world” in financial circles for this very reason.
Seek Out A Fiduciary Advisor
Too often, the unique issues financial issues facing women can get overlooked in favor of cookie cutter or self-centered advice in retirement. A surefire way to avoid this is to seek out a fiduciary advisor. Brought into the spotlight by President Barack Obama, fiduciary advisors are legally required to provide advice that’s in your best interests.
On the other hand, many advisors are legally brokers under the suitability standard, meaning their advice only has to be deemed “suitable” (including hidden fees or commissions). While you should always vet your advisor, having a fiduciary on board will ensure you aren’t being tied to any advice because of outside interests and are getting a holistic view of your entire financial life. One way to vet this is to ask your potential advisor if they have a Series 7 certification.
As a bonus, you can help close the gap by avoiding the hidden fees which can eat away at your growing nest egg. After all, it’s not what you earn that matters; it’s what you keep.
At LexION Capital, we’re a woman-owned and run fiduciary firm. We understand the unique issues women can face in retirement, and we are legally required to act in your best interests at all times. If you’d like to learn more, let’s have a conversation today.