# The 77/11 Effect: Will It Hurt Someone You Know?

When you hear that women earn less than men... do your eyes glaze over? If you are like me, you've heard the statistics so often they almost don’t register:  Women earn \$0.77 on the male dollar, spend an average of 11.5 fewer years than men in the paid workforce (raising children and tending to elderly parents), and live longer.  So we need larger nest eggs to fund our retirements. Yadda, Yadda, Yawn... right? But run a few calculations and you'll discover that "The 77/11 Effect," as I'll call it for short, can be devastating. To illustrate, let's compare the retirement saving experience of Joe vs. Jane. Joe starts saving \$5,000 a year at age 25 (10% of a \$50,000 salary). Joe saves this same amount annually until age 70 and earns an average compound annual return over that time of 6% by investing in a balanced mix of low-cost stock and bond mutual funds. At age 70, Joe has a retirement nest egg of \$1,063,717. Now, let's look at Jane. Jane also starts saving 10% of her salary at age 25. Alas, Jane only makes 77% of what Joe does so her contribution is \$3,850. Jane keeps this up until age 30.  Jane then takes 11 years (rounding here...) out of the paid workforce to raise her kids. At age 41 she re-enters the work world and once again begins saving \$3,850 a year until age 70.  Both the retirement money she saved pre- and post- children grow at 6% a year on average. At age 70, Jane has a nest egg of \$506,742.  Or said slightly differently... Jane has 1/2 of the nest egg that Joe does as a result of "The 77/11 Effect." Stunning, isn't it? Now a few caveats about the data - there are several ways to calculate the wage gap between men and women, with resulting figures ranging from \$0.77 to \$0.81. Likewise, I've seen different stats on how long women spend out of the paid workforce, ranging from 9 years to 11.5 years. But even using the "best case scenario" of \$0.81 and 9 years - we still end up with Jane having a nest egg of \$533,066 or a mere 53% of what Joe has. Given at birth Jane is statistically likely to live 5 years longer than Joe - a range that will grow over the years and get closer to 7 years more by the time she reaches retirement, you can see that we have a problem brewing. And it's not a small one, as revealed by some stunning survey results from DailyWorth.com and ING Direct in a hard-hitting piece aptly titled "Women Drop The Ball On Retirement." In future posts I'll talk more about this issue of women's earnings and pay disparity. But today, I just wanted to put some cold hard numbers to these oft quoted statistics that are so easy to gloss over. [For more on the impact of women's life / work choices, I highly recommend reading Leslie Bennett's wonderful book, THE FEMININE MISTAKE]. Do you have anyone in your life who will be affected by "The 77/11 Effect?"  If so, what advice would you give them? [This post originally appeared at ManishaThakor.com.] Want more financial love? You can follow Women's Financial Literacy Initiative founder, Manisha Thakor, on Twitter at@ManishaThakor, sign up to get her email updates deliveredright to your inbox here, and enroll in her innovative new online personal finance course called “Money Rules.”
See more stories tagged with: