This article was updated on April 6, 2018.
While April 10 may seem like just another Tuesday, it actually serves as a major wake-up call on the topic of women's salaries.
Dubbed Equal Pay Day, the day was created to signify how much further into the year the average woman must work in order to earn as much as the average man did in the previous year. (Seriously.) This not-so-happy holiday should spark some hard thinking — for women and men — about how far we still have to go to achieve gender pay parity.
For women in particular though, Equal Pay Day is an ideal time to understand how your current earning power could affect you in the long run — especially when it comes to your retirement savings. Here’s what you can do to help bridge the gap.
Know Your Worth — and Negotiate
Don’t shortchange yourself. Instead, ask for the salary you deserve, whether it's for your current job or a new role you’re interviewing for. Before going into a salary discussion, look at comparable figures posted for jobs that want someone with your level of education, experience and responsibilities, says career expert Nancy Mellard, national leader of CBIZ Women’s Advantage. “It’s empowering to negotiate what your worth is and what the value of your contributions will be.”
Also, remember that “If you’re being under-paid, this means you need to be saving a larger portion of your income to help prepare for retirement,” says Julie Ford, CFP®, founder of New York City–based Ford Financial Solutions. “You might also need to start preparing mentally to work longer or adjust your expectations of retirement.”
On average, women are paid $10,470 a year less than men, according to the National Women’s Law Center. This amounts to losing out on $418,800 in a 40-year period for women who work full-time year-round — which the center translates as women having to work about a decade more than their male counterparts in order to make up for those lost earnings.
Take Advantage of Workplace Savings Plans
This disparity could contribute to why women’s median IRA balances amount to 71% of men’s, according to 2015 research from the Employee Benefit Research Institute. A separate recent study from the National Institute on Retirement Security also found that women 65 and older are 80% more likely to live in poverty than men of the same age.
So if you've never looked at the retirement savings plans your company provides (usually the easiest way to start saving for retirement), it's time to get cracking. Reach out to your human resources rep to learn what’s already on the table that you can leverage. Then consider taking it a step further by maxing out your employer’s 401(k) match (if they offer one) and seeing what other types of tax-advantaged savings accounts they offer, such as a health savings account (HSA), which can help you cover medical costs both now and in retirement.
If your company doesn't offer a retirement plan, then it's time to start looking into opening your own Roth or Traditional IRA, Ford suggests. (Here's a quick primer on the differences between the two, if you're unsure.)
Have a Backup Savings Plan If You're Not Working
Even if you believe your salary is competitive and your retirement account is chugging along, there are certain unpredictable life events that tend to disproportionately affect women that could also affect your retirement savings gap.
For instance, women may have to take about 12 years out of the workforce in order to raise children or care for family members, according to the Family Caregiver Alliance. Other factors like divorce or the death of a spouse can also have a negative impact on your retirement savings, adds Richard E. Reyes, CFP®, of The Financial Quarterback, based in Maitland, Florida.
“Our retirement system doesn’t account too well for these life events,” he says. “It’s important that women understand the future pressures and problems they could face, and understand the concept of starting early and being diligent in their saving habits — even outside of work — so that it doesn’t become an uphill battle.”
That's why it's a good idea to have a savings strategy in place that doesn't rely solely on your workplace 401(k). Even if you're not earning income, a spousal IRA, for instance, enables your spouse to make retirement contributions to an IRA on your behalf.
Think Twice Before Inflating Your Lifestyle
While it’s tempting to buy that new car or rent a more expensive apartment as soon as you get a pay bump, think twice before upping your lifestyle expenses every time you get a raise. After all, you could be putting that extra cash toward your post-work life instead.
“Keeping lifestyle spending steady as income increases gives you more room to save,” Ford says. If you’re maxing out your lifestyle with each paycheck, not only are you potentially missing out on future retirement savings, you're also starting down the slippery slope of raising your future lifestyle expectations in retirement.
At the end of the day, Mellard says overcoming the wage gap really comes down to not being complacent with the status quo. “Never fall into the victim role,” she says. “More importantly than just being concerned [about the pay gap], we need to act on it, and the way we act on it is by doing our homework and being strategic.”
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Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.