Despite grand campaigns for equality, the United States gender pay gap has hardly budged in a decade, with American women on average still earning only 83 cents to the dollar compared with men. The gap exists across race, occupation, marital status, geographic location and even among women without children. The good news is that it has gotten smaller for young women, with females ages 16 to 24 earning 93 cents to the dollar compared with men. Only time will tell if young women are able to sustain this near parity with their male peers, as the gap has historically widened with age.
There’s much debate over the cause of the pay gap. Could it be that women are more likely to have career interruptions to raise children? Are women more willing to accept part time work? Do women suffer from outright discrimination? Are women too apprehensive to negotiate a raise?
Regardless of the cause, the negative impact that the gender pay gap has on a woman’s retirement sufficiency can be substantial. To illustrate with a simple example, assume that based on 2014’s average pay gap of 17 cents, a man and woman begin with portfolios of $100,000 and $83,000, respectively. Both are age 25, with 40 years remaining until retirement, and expect to earn an average of 5 percent per year in their portfolios. Because of the effects of compound interest, the woman would end up with $120,000 less than her male counterpart. In reality, the discrepancy in ending value would be exponentially larger if the female continues to make relatively smaller contributions to her portfolio throughout her career than the male.
While I’m certainly not recommending that society acquiesces to this indecency, it is important to recognize that women can take advantage of the factors that they immediately control to combat adversity. It is critical that women save even more, earlier in their lives in order to ensure retirement sufficiency. This is a simple but effective investment strategy that many advisors overlook or feel is too taboo to acknowledge.
I’m proud to work for a company that is ahead of the curve in combating gender inequality and defies the standards of a male-dominated industry. By providing equal pay and job opportunities, Fragasso Financial Advisors is not only acting as a proactive steward in the fight for equality, but it is diversifying the experiences, ideas, and skills of its employees to ultimately better serve its clients. This creates a virtuous cycle for the firm that further equips it with the added expertise to apply gender-specific financial planning strategies.