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  • Archive for April, 2016

    The Gig Economy And Retirement

    Monday, April 25th, 2016

    pink piggy and handA growing number of workers are participating in non-traditional, freelance or contractor style jobs, a trend that’s being referred to as the gig, or 1099, economy. According to the New York Times, the number of Americans participating as workers in the gig economy grew by 9.4 million between 2005 and 2015—larger than the overall rise in employment. Not all of those people are out on the road driving ubers—“alternative work arrangements,” also include working as a temp, as a musician (who often get paid per “gig”) or through websites like craigslist. In 2015, this described about 15.8% of the American workforce.

    While participating in the gig economy offers many benefits—most notably independence and flexibility—there’s also a big downside: in most cases, workers don’t have access to an employee sponsored retirement plan. According to a 2015 General Accounting Office report, non-traditional workers are about two-thirds less likely to have access to an employer-provided retirement plan.  The same may be true of people who only have a part time job, or are balancing multiple part time jobs. “Contingent workers”—a term that describes part-timers and contractors–made up 40% of employed workers in 2010, according to the General Accounting Office. In many cases, workplace retirement plans are only available to employees who are working full time, which is typically 35 hours or more per week. According to the White House, “fewer than 10 percent of workers without access to a workplace plan contribute to a retirement savings on their own.”

    It’s a problem that hasn’t been fully addressed in today’s workforce economy, but some companies like Honest Dollar, a startup based in Austin, Texas, are trying to find solutions. Honest Dollar offers retirement plans that employers can offer to contractors that allow them to have set amounts deducted from paychecks. Ride-sharing service Lyft recently signed up with Honest Dollar to offer retirement options to its 110,000 drivers.

    If you don’t have access to a retirement plan through your work, there are still a number of ways to save. A great option that became available starting in 2015 is the myRA. MyRA, short for “my retirement account,” was developed by the U.S. Department of Treasure specifically for people without access to a traditional 401(k). It is both convenient and affordable: there are no start-up costs or fees, and unlike most IRAs, there is no minimum contribution or balance. You can also withdraw the money you put into the account without tax or penalty. Furthermore, since it is not associated with the employer, you can keep the same account between multiple jobs. Check out WISER’s myRA fact sheet for more details and information on how to sign up.

    Another option for sole proprietors who don’t have any employees is to set up a private, one-person 401(k).  These are similar to employer provided 401(k) plans, and are sold by many retirement plan companies under the names, “Solo 401(k)”, “Solo-k”, or “Uni-k”.

    If you are one of the many workers who does not have access to a retirement savings plan through an employer, do not make the mistake of avoiding savings altogether. The extra initiative it takes to sign up for a retirement plan on one’s own should not be a deterrent. Plans like myRA make it especially easy to save, and the payoff is well worth it!

    What the Pay Gap Means for Women’s Retirement

    Thursday, April 14th, 2016

    Round tableBy now, you’ve probably already heard about the gender pay gap- the disparity in earnings between men and women that, despite national initiatives, laws, advocacy and widespread awareness, stubbornly refuses to close.  In fact, the pay gap has even been making headline news. At the end of March, the U.S. women’s national soccer team filed a federal complaint accusing the U.S. Soccer Federation of pay discrimination, pointing out that female players make about 40 percent of what male ones do.  And in his 2014 State of the Union address, President Obama highlighted the pay gap acknowledging the current average of 80 cents for every dollar men earn. He said closing the gap is a national priority, stating, “A woman deserves equal pay for equal work.”

    What you might not know is that the gender wage gap isn’t just about fairness or getting women the money they deserve—although those things are extremely important. A lesser known consequence is the “retirement wage gap,” when the lesser pay that women receive for equal work translates into less money in retirement.

    Former Congressional Representative Pat Schroeder summed up the problem decades ago in what is still an accurate assessment:  “the pay discrimination and injustice that women endure throughout their working lives come full circle when they get older—and it strikes its cruelest blow at retirement age when women realize that after a lifetime of hard work and struggling, they are left with very little to live on.”

    According to a report from Third Way, “What’s Holding Women Back from Equal Pay?”, the average earnings for a man in 2014 totaled $50,383; for a woman that number was $39,621. Since retirement benefits are based on the accumulation of lifetime earnings, it’s unsurprising that by the time women reach age 65, they are more than twice as likely to be poor as men. It’s also unsurprising that the pay gap puts women at a significant disadvantage when it comes to saving for retirement. This disadvantage is compounded by the fact that women in America live, on average, about three years longer than men do, meaning they’ll need even more savings to live comfortably through their final years.

    Employment patterns of women compared to men are one reason the pay gap exists. Women are more likely to work in low earning, service, part-time, and non-union jobs. In fact, according to Third Way, 26 of the top 30 earning jobs, including chief executives, dentists and lawyers, are male dominated, whereas 23 of the 30 lowest earning jobs, including cashiers and fast food workers, are female dominated. Low earning jobs are less likely to offer retirement benefits, and also offer women less ability to save.

    Furthermore, women are more likely than men to take time off of work for family caregiving, either for an elderly relative or for children. That time off is time that women are not earning retirement benefits or Social Security credits, and less money earned means less that can be put into savings. A National Alliance for Caregiving study showed that caregivers lost $303,880 in wages and Social Security benefits and private pensions over their lifetime. According to the Third Way, “a study by Professor Michelle Budig of the University of Massachusetts at Amherst found that women who return to the labor force after having children face a wage penalty of 4% per child that cannot be explained by other factors. Working men with children, however, experience a “fatherhood bonus” of 6%, regardless of the size of their brood.”

    There are a number of ideas about how to close the retirement gap, including making childcare more affordable and providing caregiver credits under the Social Security system.  Achieving this important goal is not only vital to our economy but also to ensuring that millions of women can retire with security and dignity.

    WISER

    About Us

    WISER is a nonprofit organization that works to help women, educators and policymakers understand the important issues surrounding women's retirement income. WISER creates a variety of consumer publications including fact sheets, booklets and a quarterly newsletter that explain in easy-to-understand language the complex issues surrounding Social Security, divorce, pay equity, pensions, savings and investments, banking, home-ownership, long-term care and disability insurance.

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