For Women, a Pay Gap Could Lead to a Retirement Gap

Women in the workforce generally earn less than men. While the gender pay gap is narrowing, it is still significant. The difference in wages, coupled with other factors, can lead to a shortfall in retirement savings for women.

Statistically speaking

Generally, women work fewer years and contribute less toward their retirement than men, resulting in lower lifetime savings. According to the U.S. Department of Labor:

• 56.7% of women work at gainful employment, which accounts for 46.8% of the labor force
• The median annual earnings for women is $39,621 — 21.4% less than the median annual earnings for men
• Women are more likely to work in part-time jobs that don't qualify for a retirement plan
• Of the 63 million working women between the ages of 21 and 64, just 44% participate in a retirement plan
• Working women are more likely than men to interrupt their careers to take care of family members
• On average, a woman retiring at age 65 can expect to live another 20 years, two years longer than a man of the same age

All else being equal, these factors mean women are more likely than men to face a retirement income shortfall. If you do find yourself facing a potential shortfall, here are some options to consider.

Plan now

Estimate how much income you'll need. Find out how much you can expect to receive from Social Security, pension plans, and other available sources. Then set a retirement savings goal and keep track of your progress.

Save, save, save

Save as much as you can. Take full advantage of IRAs and employer-sponsored retirement plans such as 401(k)s. Any investment earnings in these plans accumulate tax deferred — or tax-free, in the case of Roth accounts. Once you reach age 50, utilize special "catch-up" rules that let you make contributions over and above the normal limits (you can contribute an extra $1,000 to IRAs, and an extra $6,000 to 401(k) plans in 2017). If your employer matches your contributions, try to contribute at least as much as necessary to get the full company match — it's free money. Distributions from traditional IRAs and most employer-sponsored retirement plans are taxed as ordinary income. Withdrawals prior to age 59½ may be subject to a 10% federal income tax penalty.

Delay retirement

One way of dealing with a projected income shortfall is to stay in the workforce longer than you had planned. By doing so, you can continue supporting yourself with a salary rather than dipping into your retirement savings. And if you delay taking Social Security benefits, your monthly payment will increase.

Think about investing more aggressively

It's not uncommon for women to invest more conservatively than men. You may want to revisit your investment choices, particularly if you're still at least 10 to 15 years from retirement. Consider whether it makes sense to be slightly more aggressive. If you're willing to accept more risk, you may be able to increase your potential return. However, there are no guarantees; as you take on more risk, your potential for loss (including the risk of loss of principal) grows as well.

Consider these common factors that can affect retirement income

When planning for your retirement, consider investment risk, inflation, taxes, and health-related expenses — factors that can affect your income and savings. While many of these same issues can affect your income during your working years, you may not notice their influence because you're not depending on your savings as a major source of income. However, these common factors can greatly affect your retirement income, so it's important to plan for them.