Yahoo Finance Many Women Fear Their 401(k) Savings Won’t Be Enough: 5 Steps To Take To Catch Up
When it comes to saving for retirement, women are less confident than men that they are on track. According to Bank of America’s 2024 Workplace Benefits Report, 70% of men believe their 401(k) will build enough savings for retirement versus 58% of women.
In this “Financially Savvy Female” column, we’re chatting with Lisa Margeson, managing director of retirement research and insights at Bank of America, about why women are less confident that their 401(k) savings will be enough and what they can do to catch up if they have fallen behind.
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What are some possible reasons that women are less confident than men that their 401(k) savings will be sufficient for retirement?
There are a number of reasons why women are less confident than men that their savings will be sufficient for retirement. Oftentimes, caregiving — whether it’s having children or taking care of parents — stops women’s access to workplace retirement savings programs, like a 401(k) plan, as well as access to regular income. In fact, according to the 2024 Workplace Benefits Report, caregivers report lower financial wellness ratings compared to non-caregivers (40% versus 54%). We also know that a disparity in pay over a lifetime can translate to about a million dollars of wealth gap by retirement age.
These factors have also been stressed by recent world events. Women have been hit harder coming out of the COVID-19 pandemic than men — according to research, women’s labor force participation rate has still not fully recovered after the pandemic.
Women also tend to be less confident and comfortable with investing, which is a way to build wealth beyond just a paycheck. According to data from a 2022 Bank of America study, while women are confident managing everyday financial tasks such as paying bills (92%) and managing a budget (87%), only half are confident about managing investments (53%) and creating a diversified portfolio (44%). Bank of America research also shows that other savings vehicles, like Health Savings Accounts (HSAs), are less commonly used and invested in by women than men.
In addition, women tend to live, on average, five years longer and they retire five years earlier. When you combine all of these factors, it’s understandable that many women feel less confident about their retirement savings.
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What can women do to catch up, particularly if they have a gap in 401(k) contributions due to caregiving responsibilities?
I’ll say first that there is no one-size-fits-all path for adjusting retirement plans based on life changes. However, when it comes to big life changes, there are a few things to consider when reengaging in your 401(k) contributions.
Women face unique financial challenges that necessitate early, proactive financial planning. Women should create a plan for paying off debt and monthly expenses and stow away a percentage each month toward saving and investing — 10% of their monthly income is a good target, but every little bit counts.
For planned or expected life changes, like getting married or having a child, start preparing for any financial shifts as early as possible. Continue contributing what you reasonably can to tax-efficient and employer-sponsored saving plans, such as a 401(k) or a Health Savings Account (HSA), and capitalize on your employer match when possible as you consider other short-term costs.
If you have to leave a job, you may need to shift your goals to cover short-term expenses like rent or credit card bills. However, the good news is that your 401(k) can come with you to your next employer, where you can work on rebuilding those savings.
Make sure to explore what support and resources might be available through your employer as there may be additional benefits you’re unaware of. For example, 81% of employers say they offer support to caregivers, but 61% of employees are not aware of such support in their workplace, according to the 2024 Workplace Benefits Report.
Don’t hesitate to consult a financial advisor, if you’re able, who can help you navigate these life changes.
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This article originally appeared on GOBankingRates.com: Many Women Fear Their 401(k) Savings Won’t Be Enough: 5 Steps To Take To Catch Up
