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Savings for retirement in a jar

Women pay inequality gap follows them into retirement

If you are a woman in the workplace, you know what “women pay inequality” means: You need to work over 3 more months to earn what your man did last year. Sounds unfair?

Savings for retirement in a jar

According to a report from the White House, full-time working women earn 23% less than their male counterparts. Translated to working days, it equals to approximately 60 business days or three months into each year. Well, as you know, I’m no young chick, and if you are getting near or into your retirement years, the horror doesn’t stop there. If you earn less, you have fewer options to save, with a greater impact in your golden years and into retirement.

In addition, and to make an even gloomier panorama, in all developed countries and most undeveloped ones, women live longer than men. As a group, women outlive men, sometimes as much as 10 years.

In 2011 life expectancy was 78.7 years In the United States, which is slightly below the Organisation for Economic Co-operation and Development (OECD) average of 80.1. The OECD is an international organization that promotes policies that will improve the economic and social well-being of people around the world. Their members include the most advance countries in the world and some so-called “emerging” economies such as Chile, Mexico and Turkey.

Men in the USA expect to live an average of 76 years, while women reach 81 in life expectancy. Although the gap has been closing in in recent decades, gender discrepancy is most pronounced in the very old: among centenarians worldwide, women outnumber men nine to one.

So how does a woman who lives to 90 or 95 years old stretch her already meager savings?

A December report by the Employee Benefit Research Institute found that “the current median in a 401(k) savings account is just about $18,000.” The median retirement income for women in 2010 was just 59 percent that of men, according to the U.S. Government Accountability Office..

For many women, gender inequality doesn’t end at the workplace but it follows them into their retirement years. In fact, women are almost twice as likely as men to live below the poverty line during retirement, with single and minority women struggling the most.

In your view, it this fair? What can be done to solve the gap and help women live a decent retirement life?

 

Try this Calculator: Will you have enough to retire?

 

LIFE BELOW THE POVERTY LINE

Population Male poverty rate Female poverty rate
All 65 and older 6.6% 11%
Married 4.7% 4.9%
Widowed 10.1% 14.5%
Divorced 12.2% 17.1%
Separated 10.8% 35.4%
Never married 15.7% 23.2%
White 4.6% 8.6%
Black 13.2% 21.3%
Asian 11.6% 11.9%
Hispanic 19.1% 21.8%

Source: GAO analysis of Census data for 2012

 

savings 401K plan

Understanding how your 401(k) plan protects your children

savings 401K plan

It is culturally accepted that Latino children should take care of their aging parents; however, due to the last Great Recession creating high unemployment rates and the escalating cost of higher education, our children are facing already difficult challenges in taking care of themselves and starting their families. There is little room in that picture to fulfill the needs of aging parents.

Latino families used to have –and many still do– unspoken natural agreements in which grandma –or sometimes grandpa– would live at home to take care of the little ones and do home chores while the young couple would be working out of the house. Moving to another country, though, might have changed those rules. Our children move around for work or college, our extended family is not so extended any more –I know this because in the United States, my side of the family is my son and I, with a marvelous daughter-in-law and two adorable granddaughters.

Moreover, many aging Latinos live under the levels of poverty, depending exclusively on Social Security and their families to get by. The Pew Hispanic Center reports that older Latinos experience double the poverty rate than the general U.S. population age 65 and older, are more likely to rely on social security than other older adults, but are less likely to be eligible for social security benefits.

 

culture of poverty Latinos and social security

You can read, “La cultura de la pobreza, a stigma in minority communities.”

 

 

On the other hand, Latino families are many times compressed by the burden of an extended family sharing one roof, and the increasing cost of supporting two, even three generations with just a couple’s income. If you are in that situation, you are what I call the “sandwich generation.” You feel responsible for your parents but you have your priorities with your children. Been there, done that!

So I encourage you to start thinking a little about yourself and try to avoid this same conflict to your children. They already are facing a tough world out there! To start, let’s say you are working for a medium or large size company, and you have access to savings through a 401(k) plan. (If your company is smaller you might have access to a similar plan under a different name.) You never really paid attention to it because you take every penny you can home but now I encourage you to do.

What is a 401(k) plan?

According to CNN Money, “a 401(k) plan is a retirement plan offered to you through your employer. 401(k)s are the most common kind of defined contribution retirement plan.”

“Here’s how it works: You decide how much you want to contribute, and your employer puts the money into your individual account on your behalf. The investment happens through payroll deduction: You decide what percentage of your salary you’d like to contribute and, from then on, that amount comes straight out of your paycheck and goes into your account automatically, without you having to lift a finger. Your paycheck will be smaller as a result – though not as small as you might think, thanks to the tax benefits involved,” CNN Money explains.

In truth, there are a few benefits attached to this “forced savings plan.” You could be taking advantage of the benefits most plans include such as employer incentives, tax savings, and easy contributions. It is not that complicated once you understand the benefits, and it might not cost as much money as you think –in fact, you determine how much you want to save–, money that would eventually multiply overtime.

These are some of the benefits you want to find out if your company is offering:

  • Employer incentives: Companies typically offer these plans to encourage employees to stay in their jobs, and offer incentives for those participating in the plan. Companies sometimes match your participation up to a certain level. Not doing it is like giving up a portion of your paycheck!
  • Tax savings: You can save on taxes because you make a pre-tax contribution to most plans, which reduces your federal taxable income. You do not pay taxes on this money until you withdraw it many years later –and depending on your age and income, it will be a much lower tax rate.
  • Easy contribution: The plans are usually easy to contribute to. The money comes from your salary before it goes into your paycheck. You decide how much you want to contribute, and it goes directly into the plan after each paycheck you receive.

The numbers

As of 2014 (last year), you could contribute up  to $17,500 per year if you were less than 50 years old. If you were older than 50 you could contribute up to $23,000. Remember, every dollar you put in reduces your federal taxable income by the same amount.

This money is for your future and, eventually, to help your children at a difficult time. Even not being a burden is a way of helping them!

If take-home money is of concern, you might want to have a conversation with your family about it and plan your budget carefully so it will include these savings for your future. Then talk to your manager or human resource office to find out what options you have today.

Do not feel selfish for saving for your future. These plans and the laws that protect them were established to help aging Americans to have a well-deserved peace of mind after a lifetime of hard work.  Understanding why and making the decision to contribute today is one of the first steps towards avoiding stress and concerns in the future. There is not greater satisfaction than knowing you will take care of yourself when you’ll need it the most.

Thanks to Anthony Privetera, Financial Advisor at Morgan Stanley, for his guidance on writing this article.

Saving for life events

   You can read, “Financial planning a must to face life events”