The motherhood penalty refers to the career penalty women face after having a child. It can affect wages, the ability to get hired, workplace evaluations, and promotions.
Across both time and countries, on average, women earn less than men. According to this article, if you look across the world, you won’t find a country where men and women receive equal pay. This leads to the two primary questions this blog will address.
- What causes the motherhood penalty?
- What can you do to catch up?
Gender discrimination is a contributing factor. Some women decide to work in fields that pay less. Differences in education can also play a role. There could be an even simpler answer. The motherhood penalty could result from giving birth. Is this fair? No! But it does happen.
According to research cited in the above article, women without children earn amounts similar to their male counterparts. Mothers are the ones that experience a significant wage gap.
Research also shows hiring managers are less likely to hire mothers compared to women who don’t have kids. Plus, when employers do make an offer to a mother, they offer her a lower salary than they do other women. Men, by contrast, do not suffer a penalty when they become dads. There’s even some evidence of a “fatherhood bonus” in which their earnings actually increase.
When Does the Motherhood Penalty Begin?
While childbearing provides broad economic benefits, women are financially penalized for having children. In this study, Census Bureau researchers found that starting two years before the birth of a couple’s first child and ending a year after, the earnings gap between opposite-sex spouses doubles. The gap continues to grow until that child reaches age 10. Though it narrows after that, the motherhood penalty never disappears completely.
Most employers still don’t offer benefits such as paid parental leave, caregiving leave, or flexible work schedules. Doing so could make it easier for working spouses to share domestic responsibilities and to blend their work and family life. Rather, the workplace still adheres to an outdated model that prioritizes long, continuous, traditional work hours. This puts women at a disadvantage.
Childcare costs can be significant. This can push many women out of the workforce. Low-wage women suffer the most. Oftentimes their earnings barely offset the bill for daycare or a babysitter.
The Pandemic and the Motherhood Penalty
The pandemic may have made the problem worse. How? When the pandemic hit, many schools shut down. Many mothers stopped working to take care of their young children. This meant no income and no retirement savings.
Many of the parents who left the workforce during the pandemic have either gone back to work or are looking to do so as the pandemic eases. Many of these parents have lost up to two years of paychecks and retirement savings.
Time away from work to raise a child can have implications besides the lost pay and savings. For example, there may be lost opportunities for advancement, future raises may be lower as employers often base this year’s raise on last year’s income. It can also result in lower Social Security benefits. Less money gets deposited in 401(k) accounts and any matching company contributions may be missed or reduced as well.
When U.S. couples have their first child, the mothers’ earnings still drop substantially relative to the fathers’. New Cornell University research demonstrates the stubborn, decades-old pattern isn’t changing. Gender equality has increased in many ways. This does not represent one of them.
Research indicates that the relative drop in the earnings of mothers cuts across all education levels. The COVID-19 pandemic may lock the income imbalance in place. Mothers who stopped working to take care of their children face worse hiring prospects and wage penalties as they seek to restart their careers.
Single vs. Married Women
The motherhood penalty can affect single women more than their married counterparts. Married women can at least get some benefit from their husband’s earnings. According to this article, the assets of married women are double those of divorced or never-married women as they near retirement.
That same research estimates the average assets of married people aged 51-60 are about four times larger than those of divorced or never-married singles. Unfortunately, that doesn’t mean that married women can escape the motherhood penalty. Why? Women typically live longer than men. Around 50% of married women need their savings to last at least until 90.
The Motherhood Penalty’s Impact
While estimates of its effect range from $161,000 to $600,000, the motherhood penalty’s actual impact depends on several factors. These include how much time a woman stays home or works reduced hours, why she originally left her job, how many children she has, her occupation, whether she takes time off to care for a parent or family member, and the economic climate when she re-enters the workforce.
Most men are not affected the same as women. They are less likely to leave a job to take care of one of their parents or to be a stay-at-home parent. According to a Minneapolis Federal Reserve paper, even during the pandemic, “nearly all fathers” who disrupted work early in the pandemic quickly returned to work. But “mothers regained virtually none of their lost ground.”
Excluding the pandemic, economist Matthew Rutledge of Boston College’s Center for Retirement Research found that mothers with one child earn 28% less during their lifetime than childless women. Each additional child lowers lifetime earnings by another 3%. This impacts Social Security benefits as well. The benefits of mothers with one child are 16% lower than those of nonmothers. Each additional child causes benefits to fall another 2%.
How Can You Play Catch-Up?
Nothing above means you shouldn’t stay home with your children or take care of other family members if they need you. Many excellent reasons for making the choice to prioritize taking care of your children or other family members exist. But you do need to consider the potential implications it can have on your retirement. Let’s consider some steps you can take to help make up for the shortfall.
1. Contribute to a traditional or Roth IRA.
If you’re married, you can potentially fund a spousal IRA each year. Note that certain family income limitations may limit your ability to do so. But you don’t need to have personal earned income to fund an IRA or Roth IRA. The spousal IRA contribution applies even if your spouse’s employer has a workplace retirement plan.
2. Make retirement savings a priority when you return to work.
When you return to work, try and max out your 401(k). If you’re married, and your family was doing okay without your income, Pay Yourself First! and max out your contributions.
3. Divorced women who were married for at least 10 years can claim a spousal Social Security benefit.
You can still qualify for a spousal Social Security benefit even if you’re divorced. For example, if you took care of the kids and don’t qualify for much of a Social Security benefit, you can still claim based on your ex’s earnings record. Your marriage must have lasted for at least 10 years. If you remarried, then you may not be able to claim. Some specific rules apply in that case. Please reach out if you have questions. (This blog discusses other factors women should know about Social Security.)
4. Consider working longer.
Working longer allows you to wait longer to start collecting your benefit. This provides two advantages. First, your benefit increases each year from age 62 through age 70. Second, working longer can increase your benefit by improving your work history.
5. Don’t forget about the additional contributions you can make once past 50.
If you’re 50 or older, you can contribute the amount you can save in your IRA increases from $ 6,000 to $7,000 annually. Your maximum annual 401(k) contribution also jumps from $20,500 to $27,000. If you’re 55 or older and have an HSA, you can contribute an extra $1,000 each year.
CLOSING THOUGHTS
Women comprise almost half of the U.S. labor force, many of whom are mothers. According to the U.S. Bureau of Labor Statistics, about 71% of mothers with children at home are working. And the Center for American Progress reports that women are the sole or primary breadwinners in 41% of American households with children. Nonetheless, women’s earnings — as well as their earning potential — often take a major hit when they become moms.
We have seen the motherhood penalty in action in our home. My wife’s career earnings have taken a hit because she stepped back from the workforce after our second child’s birth. She’s worked the whole time, but not the way she did before becoming a mom. Fortunately, following the relevant catch-up suggestions has allowed us to continue funding her retirement accounts the whole time. And our kids benefited by having her be there when they needed her.
These factors can hamper a woman’s retirement, leaving her with less money for her retirement. If you find yourself in this position consider the suggestions we shared to help you make up as much of the shortfall as you can. If you would like to discuss any of them, please schedule a call.
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Phil Weiss founded Apprise Wealth Management. He started his financial services career in 1987 working as a tax professional for Deloitte & Touche. For the past 25+ years, he has worked extensively in the areas of financial planning and investment management. Phil is both a CFA charterholder and a CPA.
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