When you hear the phrase “pay gap,” the figure 82 cents likely comes to mind. While the fact that women statistically earn 82 cents to a man’s dollar is still an unfortunate reality, there’s a figure that's possibly even more alarming: $407,760.
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 a 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.
I’ve seen how this can have a serious impact if it isn’t addressed. The good news, however, is that this gap can be overcome. In fact, millions of women still retire successfully every year. Here are three tips to overcome this gender pay gap in retirement:
Be proactive in terms of wage
While we’re all hoping for legislation that will make an even playing field in terms of wages, there are moves you can take now rather than holding your breath.
Women may need to be more aggressive when negotiating a higher salary; it has been reported that women on average are less likely to ask for a pay increase. Linda Babcock, who did a study for her renowned book Women Don’t Ask, found that only seven percent of women attempted to negotiate their salaries, compared to 57 percent of men. However, those who did negotiate were able to increase their salary by over seven percent.
While a seven percent raise might not seem too significant, compounded over years it can turn into an enormous fortune. Negotiation is a valuable skill for many reasons, but sharpening it now might just be the key to your successful retirement.
For starters, I recommend getting scientific. There are a plethora of online sources that can tell you what people in your field, experience level and location are getting paid for similar roles. By making your ask as concrete as possible, you’ll present a surefire case for getting a raise.
Specifically for retirement, pay isn’t the only thing that’s negotiable. Offers like 401(k) matching can greatly impact your bottom line and increase your return on investment. Negotiating for a bigger employer match might seem to be an oddball move, but it will exponentially increase the value of every dollar you invest in those accounts towards retirement.
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.
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.
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 2019, 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.
While the gender pay gap is an incredibly complex and controversial issue, avoiding its effects on your retirement doesn’t have to be. Many women are able to meet their retirement goals and live comfortably during retirement by planning ahead and becoming aware of any unique financial roadblocks. By taking it a step at a time, you can ensure you live a worry-free financial life, regardless of any gap.