Career Breaks: The Risks for Women's Retirement Savings

March 25, 2020

Taking any kind of break from a career can impact any ongoing contributions to retirement savings, which potentially means missing out on years of accumulation. Here are a few things you may want to discuss with your female clients who are women to plan for a career break.


Starting A Family

According to a United States Department of Agriculture study, the average cost of raising a child in America to the age of 18 is $233,610. That number includes the costs parents can expect to pay for their child’s food, shelter, clothing, health care, education, and more. But what it doesn’t include is the impact taking time off from work to raise a family can have on their retirement savings.

When women take time off to raise their families, they can face challenges to their careers and earning potential. This concept is commonly known as the “motherhood penalty.” A study conducted by the National Bureau of Economic Research found that career interruptions are a significant contributor to the gender wage gap, especially for women in high-skilled occupations.

In another study, women’s salaries dropped 30 percent after the birth of their first child while men’s salaries did not. In that study, the women never recovered, earning 20 percent less than their peers over the course of their careers.


Lost Savings  

When women choose to take time off work, downsize their careers, or start a family, they can see drastic cuts to lifetime savings. Research estimates that a 10-year break can often cost a woman as much as $1.3 million. And in these cases, life stage can be just as important as length of time.

Because 401(k) and IRA contributions grow over time with pre-tax dollars, those who take breaks early in their careers can be more susceptible to lose savings. Reports suggest that a 25-year-old who takes 10 years off could need to save at least 25% of their salary when they return from a break in order to get caught up and on track. That percent drops considerably for those who take breaks later, because the money they made earlier in their careers has been growing with interest.


Lost Benefits

Social Security benefits can be one of the larger streams of income in any retirement plan, as it can replace up to 40 percent of an individual’s working salary. The way Social Security is calculated  is complicated and involves a credit system, but it is primarily based on an individual’s salary over their 35 highest-earning years.

If your female clients take a break during their peak earning years—usually considered to be their 40s and 50s—their Social Security benefits could be calculated from years where they earned considerably less than their potential peak earnings.


Learn more about women’s unique needs in retirement and use the infographic below to start a conversation around how to plan for a career and help your female clients feel confident in retirement.






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