Saving for retirement is never easy, but it’s even more challenging if you’re earning a lower income.
The gender wage gap is a well-known issue that has gained considerable attention in recent years, but many women in the workplace are still underpaid. As of 2022, women earn on average 82% of what men earn, according to data from the Pew Research Center.
This number has remained relatively unchanged over the past two decades. Back in 2002, women earned around 80% as much as men, according to Pew.
When your income is lower, it can be more difficult to put away money for retirement. Over decades, that can add up to a substantially smaller nest egg.
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The wage gap can be costly
The median salary for men is around $50,391 per year, according to 2021 data from the U.S. Census Bureau. Women, however, earn around 27% less than their male counterparts, with a median salary of $36,726 per year.
That’s already a considerable gap, but it makes an even bigger difference when it comes to retirement savings.
For example, say that Worker One is earning $50,000 a year, while Worker Two is earning $37,000. In both cases, let’s say they’re each contributing 10% of their salary to their retirement account. Let’s also assume both workers are earning a modest rate of return of around 8% per year, on average.
In short, all factors remain the same between both workers, except for the dollar amount they’re saving each year. Worker One is contributing $5,000 per year, while Worker Two is saving $3,700 per year. Here are the approximate total savings over time, including the 8% annual returns:
| Number of Years | Total Savings for Worker One | Total Savings for Worker Two |
|---|---|---|
| 10 | $72,000 | $54,000 |
| 20 | $229,000 | $169,000 |
| 30 | $567,000 | $419,000 |
| 40 | $1,296,000 | $957,000 |
Source: Author’s calculations via Investor.gov
While the difference between investing $3,700 and $5,000 per year might not seem significant, it can add up to roughly $339,000 over a career. The wider the wage gap, the further this spread will be.
The good news for women
Progress to narrow the wage gap has been slow, but the good news is that when women invest, they often do it better than men.
Women, on average, only take on around 82% of the risk that men take when investing, according to a 2021 report from Wells Fargo. Yet that same report found that despite taking on less risk, women also earn higher risk-adjusted returns than men.
A 2021 report from Fidelity Investments also found that over 10 years, women earned 0.4% higher returns than men. And a study from the University of California, Berkeley, discovered that men trade stocks more frequently than women, which reduced their annual returns by 2.65%.
In other words, research has found that women are generally less impulsive and more conservative when investing, which are attributes that work in their favor in the stock market.
Invest like a woman
The wage gap, unfortunately, remains a serious problem for women in the workplace. But everyone — regardless of gender — can learn a few things from women to improve their strategy and earn higher returns.
One of the most effective ways to build wealth in the stock market is to invest in quality stocks and hold them for the long term — or simply invest through your 401(k) or IRA. Get-rich-quick investments can be tempting, but the vast majority of the time, they don’t pay off — and you’ll end up losing more than you gain.
Slow but steady is the name of the game in investing. Short-term trading can be lucrative in some cases, but it’s incredibly risky. You’re often better off contributing consistently to your retirement account, and then giving your money as many years as possible to grow.
Women might be at a disadvantage when saving for retirement, but research shows they make smarter investors. By following their lead, you’re more likely to build a solid retirement nest egg.
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Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Katie Brockman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
