CHICAGO - If mom arrives at this year’s Mother’s Day gathering looking like she needs less stress and more relaxation, resist the urge to tell her to leave her job.
Study after study shows that women who leave the workforce, whether it is to care for children or to retire early with a spouse, take a hefty financial hit.
The price women pay for raising a family has been dubbed the “motherhood penalty,” with numerous academic studies quantifying the impact in thousands of dollars.
Over a lifetime, mothers with one child earn 28 percent less than childless women, according to a recent study led by Matthew Rutledge for the Center for Retirement Research at Boston College. For each additional child, women lose another 3 percent.
The sacrifice in dollars is startling. Women without children are paid a median of $3,850 a month; mothers earn about $1,278 less each month, according to Rutledge.
That can leave women vulnerable in divorce and widowhood. Simply having one child erodes a woman’s Social Security benefits by 16 percent, and another 2 percent goes away with each additional child, according to Rutledge.
Since Social Security is a major source of retirement income for most widows, losing 16 percent is significant.
The motherhood penalty occurs when women leave jobs altogether or move to part-time work for a period while raising children. Then, as they re-enter the workforce, they find themselves behind on both pay and career level.
The impact is the worst for professional women, especially lawyers and engineers, according to the U.S. Census.
The good news: If women work long enough, they start closing the gap as they hit their peak earnings years in their 50s and 60s, according to research by Nicole Maestas, associate professor of health policy at Harvard Medical School.
The trouble is, however, that many married women do not give themselves a chance to make up for the income they sacrificed as mothers, Maestas said. They tend to retire at the same time as their spouses, even though they are often younger.
For about half of married women, retirement comes before age 62. That is the age when some Social Security benefits start at a level that is 26.7 percent below the full retirement age – currently 66 years and 4 months.
These women cut themselves off from the key working years that allow them to catch up on earnings along with future pension and Social Security checks.
According to Maestas, women retiring at 62 give up almost $200,000 in pay, on average, that they could have earned on the job if they worked five more years and saved for retirement. In addition, retiring at age 62 cuts lifetime Social Security benefits.
The reality hits many women when it is too late to make a difference.
“I’ve seen horrific situations,” said Cindy Hounsell, president of the Women’s Institute for a Secure Retirement.
Case in point: a couple Hounsell knows who thought they would be OK when they retired. They did not save for retirement, but rather thought they would depend on flipping houses – a plan that backfired with sharp losses during the financial crisis.
The husband, 75, now has Parkinson’s while his wife has lung problems. They live on $48,000 in Social Security payments, based on his years running a small business along with the spousal benefits the wife receives.
With no extra money for help, the wife must lift her husband in and out of the back seat of their car when they must go to medical visits.
“They are living hand to mouth,” Hounsell said.
Her message to younger women is: save for retirement starting in your 20s, even if finances are tight and you have no 401(k) or retirement savings plan through a job.
“If you stay home to raise children, make sure your husband funds a Roth IRA fully for you each year,” Hounsell said.
Spouses with jobs or businesses can put as much as $5,500 into an IRA or Roth IRA each year for a non-working spouse. Roth IRAs during retirement are attractive because withdrawals are not taxed.
And before retiring, maximize Social Security benefits. Said Hounsell: “When people first retire, they feel like everything will be OK, but then health problems happen, things you didn’t expect happen, and you need all the money you can get.”
Editing by Lauren Young and Steve Orlofsky