Will You Face Downward Mobility When You Retire?

Many of us picture retirement as a time of ease. By then, the house will be paid off and the nest should be empty. Though there won’t be a paycheck to cover our bills, maintaining our lifestyle will cost less.

The reality, however, is often reduced circumstances. “Our current retirement plans, including 401(k)s and IRAs, have failed,” says Teresa Ghilarducci, economics professor at The New School for Social Research and author of How to Retire with Enough Money and How to Know What Enough Is. “Even the top 10 percent who make more than $100,000 save less than half of what they need.”

The gender pay gap, along with the breaks from employment or full employment that women take to care for children or elderly parents, means that women are especially at risk of facing an insecure old age. “Earnings are the foundation of retirement savings,” Ghilarducci says. “So those differences can really snowball.”

Almost a decade ago, Ghilarducci proposed what she calls Guaranteed Retirement Accounts (GRAs): “At a minimum, 1.5 percent of paychecks would go into the GRA tax-free and the employer would match 1.5 percent, the money would be managed by professionals for low fees and at retirement it would be distributed as a lifetime benefit.” The key factor: they would be mandatory for everyone.

“The plan was designed to help the bottom 70 percent of the labor force, which is more than 90 percent of women workers,” she adds. Aspects of GRAs have been taken up by state legislatures, and perhaps one day, the federal government will attempt to address the retirement crisis and consider Ghilarducci’s innovation, too (she advocates for it as a supplement to Social Security). In the meantime, here are three things Ghilarducci wishes more women knew about retirement savings:

#1. You can contribute less if you start early.

“You would have to save 20 percent of your income in your 50s to have as much as someone who started socking away only five to seven percent in their 20s. That’s because the dollar you save at age 25 will multiply five times, while the dollar you save at age 50 hardly multiplies at all.”

#2. That said, 10 percent is a good number to aim for.

“People who are successful in saving enough for retirement put away 10 percent or more of their income their entire working life.”

#3. Beware your children.

“They’re dangerous to your retirement savings. Women are more likely than men to make withdrawals from their accounts to pay for college, weddings and unexpected financial needs. But that money should be off-limits. People who take money out before they retire are more likely to end up with inadequate funds.”