Ensuring you have enough income during retirement is hard enough, but it can be even harder if you’re a woman. Some causes are obvious; others less so. But no matter the underlying reasons, there are things women can do to help close the gender retirement gap.
A Multifaceted Problem
The underlying causes of the retirement gap for women are complex. First, women continue to earn roughly $.80 for every $1 that men earn in a comparable job.1 That not only reduces the amount of income they can save, but it can also lower Social Security contributions and their employers’ matching contributions to a 401(k) or other retirement plan, further shrinking funds available to them during retirement.
Studies have shown that women generally take more time away from the workforce for childcare (5.5 years versus just .5 years for men).2 And later in life, women often take more time out to help care for aging parents (1.2 years versus .6 years).3 Fewer years of earning can translate to shortfalls during retirement.
In addition, research suggests women tend to be more conservative in how they invest the money they do save.4 Overall, women generally own fewer stocks and exchange-traded funds (ETFs), and their investments weigh more heavily to cash and money market accounts. This can lead to lower investment yields over time and less retirement savings overall.
As a group, women have been hit harder by the economic impacts of the COVID-19 pandemic than men. In December 2020, the U.S. economy lost 140,000 jobs — all of them attributed to women.5 This was partly due to women being overrepresented in service jobs (e.g., restaurants and retail) but school closures and their impact on childcare have likely exacerbated the issue.
Finally, on average, women live longer than men. In the U.S., they live five years longer (seven years longer worldwide).6 While options such as cohabitating later in life or living with children or other relatives are common, many women end up living alone for years during retirement. Since this is typically more expensive than sharing expenses with a spouse, partner or roommate, women should factor in the added cost of living alone when evaluating how much money they’ll need in retirement.
But what can be done?
Fix #1: Know Your Numbers
The first step toward closing your own retirement gap is gauging how big it is to begin with. And to do that, you need to know your numbers. Look at your portfolio performance and its projected balance at retirement, expected Social Security benefits, anticipated healthcare and other costs of living. Don’t forget to include your debt in the overall picture. Ultimately, you need to project whether your sources of income will cover the expenses you’ll incur for the length and type of retirement you want. If you need help, your financial advisor can help walk you through the numbers.
Fix #2: Ramp Up Savings
Because women often work fewer years, earn less and live longer than men, they generally need to save more of their income during the years they are working. That means increasing contribution levels to 401(k), 403(b) or other retirement accounts as well as making catch-up contributions once they become eligible.
Fix #3: Reevaluate Risk
Especially for women in their 30s, 40s and early 50s who may be more than a decade away from retirement, weighting stocks more heavily in their portfolio may lead to higher gains. Higher gains over more years equals more income in retirement. Especially if you’re more than a decade out from exiting the workforce, speak to your advisor about whether taking on a little more risk makes sense in your particular situation.
Fix #4: Manage Debt
Retiring with debt — from children’s college expenses, medical debt, credit cards, a HELOC or large mortgage — can make budgeting a lot harder. Take stock of your long-term obligations and, while you’re still employed, create a plan to reduce or eliminate that debt well before retirement. Talk to your financial advisor about this in detail. While they may have access to your retirement account balances, they won’t know what your debts are unless you tell them. Come up with a manageable program that keeps you on track with savings, but also frees you from the burden of excessive debt.
Fix #5: Be Proactive
There may be no better way to narrow the gender retirement gap than for women to take an active role in understanding and managing all aspects of their finances, including their retirement planning. Improve your financial literacy by making an appointment with your financial advisor to get a clearer picture of where you are now and how to plan for the retirement you want to someday enjoy.