Life does not always follow a straight line, especially when it comes to careers. For many women in America, career breaks are not rare exceptions. Whether it be for a few months or several years, these pauses can happen for a variety of reasons, such as starting a family, caring for loved ones, pursuing education, or taking time to recover from burnout.
While these breaks are often essential for personal and family well-being, they can come at a cost. Especially when it comes to retirement savings. Women, on average, retire with 30% less savings than men. This gap exists for many reasons, including the gender pay gap, caregiving responsibilities, and longer life expectancies. Understanding how pauses impact retirement and how to protect your savings is critical.
How Career Breaks Affect Women’s Retirement Plans
Parental Leave and Childcare Breaks
Caring for children is perhaps the most common career pause women face. Some step away for only a few months of maternity leave, while others are out of the workforce for years. During that time, retirement contributions may stop.
Missing even one year of 401(k) or IRA contributions can reduce long-term savings significantly because of lost compound growth. Starting and consistently contributing early allows money to benefit from compound growth over time.
Caregiving for Family Members
In the United States, one in five adults provide care for an aging family member and a majority of them are women. About four and a half million belong to the “sandwich generation,” simultaneously raising children under 18 while caring for aging parents.
The impact on retirement is profound:
- Nearly one-third of caregivers have stopped saving for the future
- 24% have exhausted short-term savings.
- Some have tapped into long-term accounts such as retirement funds or education savings to cover expenses,
- 23% report being in debt due to caregiving responsibilities.
These numbers reveal the truth. Caregiving is not just an emotional strain but a financial one, pushing women further behind in retirement planning.
Pursuing Education or Career Changes
Some career pauses are intentional steps toward professional growth. Women may take time off to earn a degree, gain new certifications, or switch fields entirely. These pauses often involve short-term income sacrifices, which can affect retirement contributions. However, investing in education can potentially pay off in the long term. A new career or an advanced degree can lead to higher earnings and ultimately larger retirement savings. Strategic planning is key to maintaining progress toward retirement security even during a break.
Entrepreneurship and Self-Employment Breaks
Some women leave traditional employment to start businesses or pursue freelance opportunities. Entrepreneurship can be deeply fulfilling, but income may be less predictable, making consistent retirement contributions more challenging.
Retirement tips: Even without an employer plan, you can continue growing your savings through IRAs. Opening a Traditional or Roth IRA during career breaks can help you continue building toward long-term financial security while taking advantage of each account’s tax benefits.
A SEP IRA is specifically designed for self-employed individuals and provides higher contribution limits and greater flexibility that can scale with your income compared to other IRA options. Even without access to an employer plan, an IRA can help you keep your retirement goals on track.
