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Women’s Wage Gap Woes: Compounding into Retirement

The gender wage gap is often thought of in a present tense, as it’s the gap that exists in earnings between a man and woman’s current compensation.

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That gap, however, can create further inequity as it relates to retirement contributions, creating a compounding gap over time, according to a report by Human Interest, a 401(k) provider.

The report, which analyzed the retirement savings patterns of more than 28,000 anonymous small and micro-business (SMB) employees, revealed that while men and women contribute to their 401(k) at similar rates —7.9% and 7.5% of income, respectively — this seemingly small difference can compound over the course of one’s life.

“It’s no secret that women earn less than men, with a woman, on average, making around 80 cents for every dollar a man makes,” Jeff Schneble, CEO of Human Interest, said in a release. “We hear all the time about how serious this 20-cent differential is, but we fail to put this difference in context: What does it mean over the course of a 40-year career?”

In Schneble’s example, he notes that after 40 years of earning the average salary for their gender, a man would end up with a 401(k) balance that breaks down into a $2,200 payout every month for the rest of his life; a woman would have 30% less per month, with a payout of $1,500 a month.  If that 401(k) gets 5% returns over the course of 40 years, the man and woman will reach retirement age with a difference of more than $100,000 in the size of their savings.

How SMB Employees Save for Retirement
Data shows that SMB employees across the board will invest when given access to a vehicle to help them save for retirement. Across demographics and industries, people contribute between 5% to 10% of their salary when they have access to a workplace 401(k). 

Compared to people who are single or divorced, married people contribute the highest percentage of their income to their 401(k): 

  • On average, married people are allocating 8.2% of their income to their 401(k). Those who are single contribute slightly more than those who are divorced — 7% and 6.8%, respectively. 
  • In general, men are contributing a higher portion of their income to their 401(k) than women. However, the one exception is married women: Married women are saving more in their 401(k), at 9% vs. just 8.2% for men. This data suggests that married women working at SMBs and contributing to their company 401(k) will have less of a shortfall in retirement. 

“For years, women have been at increased risk of financial insecurity in retirement,” Schneble said. “Our data shows that married women, specifically, are now out-saving men. By allocating more funds to their retirement plans, they’re shoring up their financial future.”

While offering an employee match can drive plan participation, an employer gives employees a strong vehicle for retirement savings by simply providing a 401(k): 

  • On average, with a match, employees contribute 7.4% per year; without one, they contribute 7.1%. 

Data highlights that when given access to a retirement plan, employees — even those with lower salaries — are committed to setting themselves up for a financially secure future:

  • People earning a $30,000 to $39,999 annual salary are saving 6.1% of their salary in their company 401(k). 
  • Workers earning $200,000 to $209,999 are saving 7.7% of their salary in a 401(k).

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