September 2016
Small Business Owner? Promote Your Employer Match
Income Inequality and Its Impact on Women's Retirement
Tips for Avoiding an Early Withdrawal Penalty

Small Business Owner? Promote Your Employer Match

Employer matching contributions can go far toward attracting and retaining talented, loyal employees. Make sure you are “getting the message out” about this important benefit.

Most 401(k) plan sponsors offer their employees some type of matching contributions. The most common match, according to the Plan Sponsor Council of America, is 50 cents for every dollar an employee contributes to the plan, up to 6% of compensation.1 The reason for offering this benefit is simple: The availability of matching contributions encourages employees to participate in their employer’s plan and, in many cases, to contribute more to the plan — both of which can help at annual nondiscrimination testing time.

But many employees, particularly lower paid employees, fail to take full advantage of this important benefit. By some estimates, as many as two-thirds of the lowest paid employees may not be contributing enough to receive the full company match. What can you do to get all of your employees on board?

Show Them the Money

To start, look at your enrollment and educational materials to see how matching contributions are explained. Many employers find that a “free money” approach is effective, pointing out that the employer is giving employees extra money for retirement. Also helpful are illustrations showing the difference matching contributions can potentially make in their plan account balance at retirement.

Target Education

Consider reviewing your plan data to determine which participants are not taking full advantage of your matching contributions. You might want to target these employees with payroll stuffers or e-mail communications pointing out the benefits of matching contributions. Or, if employees who are not taking advantage of your match seem to be concentrated in certain departments, you may want to post matching contribution posters in those areas. Another idea is to briefly talk about your 401(k) plan and your match program at the performance/pay reviews of select — or perhaps all — employees.

1Plan Sponsor Council of America, “58th Annual Survey of Profit Sharing and 401(k) Plans,” 2015 (2014 plan experience).

Income Inequality and Its Impact on Women's Retirement

Gender issues affect more than just a woman’s paychecks. Longevity, family caregiving, and the gender wage gap influence women’s long-term financial well-being and retirement security.

Here are the facts. Generally speaking, women earn less than men, live longer than men, and often take time out of the workforce to have children and/or to care for an aging parent or sick loved one. The potential consequence of these realities? While most U.S. workers are facing a retirement savings deficit, for women, the effect is compounded: Lower pay translates into reduced Social Security benefits, smaller pensions, and less retirement savings.

Just the Facts

You needn’t look far to find evidence of the gender retirement gap. Consider the following facts:

Many women will need to make their retirement nest eggs last longer than men’s. According to the latest data from the Society of Actuaries, among females age 65, overall longevity has risen 2.4 years from 86.4 in 2000 to 88.8 in 2014. Similarly, among 65-year-old men, longevity has risen two years during the same timeframe, from 84.6 to 86.6 in 2014.1

The gender wage gap has a ripple effect over a woman’s entire career. The National Women’s Law Center has found that a woman starting her career now will lose more than $430,480 over a 40-year career; for Latinas, this wage gap could total $1,007,080 over a career, and for an African American woman, the total wage deficit could reach $877,480.2 Put another way, a woman would have to work 51 years to earn what a man earns in 40 years.2

Family caregiving causes career interruptions that can have significant monetary consequences over time. Research conducted by the AARP revealed that family caregivers who are at least 50 years old and leave the workforce to care for a parent forgo, on average, $304,000 in salary and benefits over their lifetime. These estimates range from $283,716 for men to $324,044 for women.3

The retirement income gap is very real. The average Social Security benefit for women older than 65 was $14,234 annually in 2014, compared with $18,113 for men, according to Social Security Administration data.4 Research shows that women also receive about a third less income in retirement from defined benefit pension plans and have accumulated about a third fewer assets in defined contribution retirement accounts than their male counterparts.5

Progress: Slow but Steady

While the evidence is compelling and points out the continuing challenge women face in attaining a secure financial future, there are also signs of improvement for women and their outlook for retirement. For instance, according to the National Institute on Retirement Security’s recent study, women are working for more years now than ever before, which helps to enhance their Social Security benefits, pension income, and retirement savings. Specifically, the study found that the workforce participation of women age 55 to 64 has climbed from 53.2% in 2000 to 59.2% in 2015.5 And today as many women as men participate in workplace retirement plans.

More broad-based measures, such as legislative action to eliminate the gender pay gap would go far toward leveling the playing field for women when it comes to retirement readiness, yet such policy matters are complicated and outcomes are impossible to predict.

Beating the Odds

Despite these challenges, many women retire with enough money to relax and enjoy their later years. Here’s how they do it:

  • Saving as much as they can: This year you can save up to $18,000 in an employer-sponsored retirement plan, plus a $6,000 “catch-up” contribution if you are age 50 or older. Your contributions are made on pretax income, which means you’re paying taxes on a lower amount.6
  • Becoming educated about other sources of retirement income. No matter how committed you are to saving, chances are your employer-sponsored plan won’t provide all of the money you’ll need once you retire. Find out as much as you can about Social Security — and strategies for optimizing your benefits — as well as IRAs and other investments that can help fill in the gaps.7
  • Make the connection between life expectancy and income needs. Even if you already have a healthy nest egg, it’s important to continue saving because you could end up spending 20 or 30 years in retirement, which means you’ll have to save that much more.

Regardless of your personal challenges, you can take charge of your financial future — starting today.


1Society of Actuaries, “Society of Actuaries Releases New Mortality Tables and an Updated Mortality Improvement Scale to Improve Accuracy of Private Pension Plan Estimates,” October 27, 2014.

2The National Women’s Law Center, “Wage Gap Costs Women More Than $430,000 Over a Career, NWLC Analysis Shows,” April 4, 2016.

3AARP: Understanding the Impact of Family Caregiving on Work, Fact Sheet 271, October, 2012 and MetLife Mature Market Institute, “The MetLife Study of Caregiving: Costs to Work Caregivers: Double Jeopardy for Baby Boomers Caring For Their Parents,” 2011.

4Morningstar, “Retirement: The Other Economic Gender Gap,” June 7, 2016.

5National Institute on Retirement Security, “Shortchanged in Retirement: Continuing Challenges to Women’s Financial Future,” March 2016.

6To make the catch-up contribution, you are first required to save the annual maximum of $18,000.

7Distributions from a traditional IRA will be subject to taxation upon withdrawal at then-current rates. Distributions taken prior to age 59½ may be subject to an additional 10% federal tax.

Tips for Avoiding an Early Withdrawal Penalty

One way to potentially avoid paying an early withdrawal penalty on money taken from your IRA before age 59½ is to use what is called “substantially equal periodic payments” (SEPPs).

If you take a taxable distribution from your IRA before age 59½, you generally will be required to pay a 10% additional federal tax. However, in certain situations, you may be able to avoid the imposition of the added tax. One little-known penalty exception is available to IRA owners who take substantially equal periodic payments (SEPPs) from their IRA accounts.

A financial hardship, or perhaps an early retirement, may cause you to consider taking an early distribution from your IRA. Whatever the case, before tapping into your account, you should think about how it might affect your future retirement income — as well as the income taxes you may potentially owe.

All About SEPPs

SEPPs might be an appropriate strategy if you need to supplement your income — perhaps while you are starting a new business venture. Once you start taking SEPPs, you’ll have to continue for a minimum of five years or until you reach age 59½, whichever comes later. So, if you begin a SEPP program at age 45, you’ll have to continue making withdrawals for 14½ years — until you turn 59½. If you begin taking SEPPs at age 58, you’ll have to take withdrawals for five years, or until you reach age 63.

At the end of the required SEPP period, you can modify your withdrawal program or discontinue withdrawals (until you reach age 70½ and have to begin taking annual required minimum distributions from your IRA). If you want to stop taking SEPPs before the end of the required SEPP period, you’ll generally have to pay a 10% penalty plus interest on the amounts you withdrew under the SEPP arrangement before reaching age 59½.

The IRS has several “safe harbor” methods for calculating the required SEPP amount. Payments must be taken at least annually and are either fixed or recalculated annually, depending on which method you use.

IRA distribution planning can be complex. Understanding the tax rules can help you make the most of your retirement assets.

This communication is not intended to be tax advice and should not be treated as such. Each individual’s — and business’s — tax situation is different. You should contact your Capital Advantage financial advisor or your tax professional to discuss your own situation.