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How Women Can Trim the Retirement Savings Gap

On average, women expect to have a five-year income gap in retirement, while men on average believe they’ll have enough income to meet their needs, MassMutual found.

Women put in a lot of free labor in the form of caring for loved ones — and that is costing them in retirement.

A recent survey by the MassMutual insurance company found that women expect they’ll have a five-year income shortfall in retirement. Men, on the other hand, believe that their income will be enough to meet their needs.

MassMutual, working with Greenwald & Associates, polled 804 preretirees and 801 retirees online in January.

Today in the U.S., women earn about 80 cents to each dollar a man makes.

Couple the difference in wages with the fact that women in the U.S. tend to outlive men by approximately five years, and you can see why their fears of outliving their savings are credible.

Further, nearly 2 in 3 female workers who took family leave were the primary caregiver, according to data from Pew Research Center.

Once a woman has left the workplace to care for others, even temporarily, it’s hard to make up for lost time and earnings when she returns.

“The income often never recovers,” said Teresa Hassara, head of MassMutual Workplace Solutions. “You can’t get back to that income trajectory.”

Here’s what women can do to shore up their savings.

Spousal IRAs

If you leave the workforce for a few years and your spouse is still employed, consider establishing a spousal individual retirement account.

Individuals can save up to $5,500 each year in an IRA, plus $1,000 if you’re 50 and over.

Bear in mind that rules apply: One spouse must be earning income in order to sock money away into an IRA. The couple must file a joint income tax return, and they must be married.

Investors who turn 70½ are prohibited from making contributions to traditional IRAs. The same age limit applies to stay-at-home spouses.

You don’t need to open a new IRA account to fund a spousal IRA. Rather, the working spouse uses his or her own pay to contribute to the stay-at-home spouse’s account, said Jeffrey Levine, CPA and director of financial planning at BluePrint Wealth Alliance.

Further, households with only one working spouse can contribute to a spousal Roth IRA — as long as the couple’s joint income doesn’t exceed $199,000 for 2018.

Know your 401(k) plan

If you’re thinking about leaving your job or slashing your hours to better accommodate caring for family members, understand what it means for your retirement plan.

“Make sure you know every single benefit you have,” said Cindy Hounsell, president of Women’s Institute for a Secure Retirement.

That’s because you may be subject to vesting requirements, meaning that you need to have been at your employer for a specified period of time before you can take any profit-sharing or matching contributions your company had saved on your behalf.

If you leave too early, you forfeit those employer contributions. You can’t make up for a lack of saving and compounding by ratcheting up your market risk in your 60s and 70s.

For defined contribution plans, including 401(k) plans, you may need to put in as much as six years of service before you are fully vested.

You should also get to know your health insurance coverage: Will you still be eligible for coverage if you reduce your hours worked?

If you think you’re going to leave your job altogether, find out if you can qualify for temporary coverage at your former employer under the Consolidated Omnibus Budget Reconciliation Act.

COBRA allows you to buy coverage under your employer’s policy, but you’ll be paying the full premium instead of having some of it covered by your company.

Mind your risk

About 25 percent of the women and nearly 2 in 10 men polled by MassMutual said they were comfortable with a little investment risk, even if it meant accepting below average investment returns.

Whether you should increase your exposure to equities depends on a number of criteria, including your time horizon and appetite for risk. Talk with your financial advisor to get a sense of how you should invest to reach your goals — and do it as early as possible.

“You don’t have to hit the ball out of the park all of the time in the early years, but over time the money will grow and that’s the key,” said Avani Ramnani, director of financial planning and wealth management at Francis Financial in New York.

Avoid going whole hog into stocks if you’re approaching retirement in order to make up for meager savings. A market downturn when you’re about to stop working can be devastating to your finances.

You can’t make up for a lack of saving and compounding by ratcheting up your market risk in your 60s and 70s. In that case, punching the clock for a few more years so that you continue to save might be a better call.

Can you work five more years? Seven more years? That’s the way to do this.


About the Author

Darla Mercado

Darla Mercado is a personal finance writer for, based out of the company's headquarters in Englewood Cliffs, N.J. She covers financial planning, life insurance, annuities and retirement plans.

Prior to joining CNBC, Mercado was a reporter at InvestmentNews, a New York City-based newspaper, writing on the retirement and insurance beat.