How The Gender Income Gap Impacts Women’s Retirement
Morgane Wojtowicz
Registered Representative & Financial Advisor at USAFrance Financials 🇫🇷🇺🇸
E. Napoletano, Benjamin Curry
Contributor, Editor
It’s natural to have concerns about whether you’re saving enough for retirement. A report from the National Institute for Retirement Security (NIRS) finds that women, in particular, remain at a disadvantage with their retirement savings.
Women aged 65 or older have a median household retirement income of $47,244, only 83% of their male counterparts, who live in households with a median retirement income of $57,144, including Social Security, pensions, investment income and earnings. The study determined that several factors contribute to the gender income gap in retirement, including wage gaps throughout a woman’s career, divorce and caregiving responsibilities.
Notable findings of the NIRS study include:
• Women earn roughly $0.80 on the dollar throughout their careers compared to men, reducing the amount women can save for retirement.
• Women live longer than men, which means they have to stretch less in retirement savings over longer periods and are more likely to end up widowed.
• Women are more likely to leave the workforce or take part-time jobs to accommodate caregiving responsibilities, resulting in lower Social Security payments and lower total retirement income.
• Years spent out of the workforce for caregiving responsibilities—for children, spouses, and aging parents—significantly impact women’s total retirement savings and income.
• Female caregivers younger than 50 have 30% less retirement wealth than non-caregivers (compared to 14% less for men). Female caregivers 50 or older have 58% less retirement wealth than non-caregivers (compared to 48% less for men).
• Women 80 and older are most likely to experience retirement income challenges due to the prevalence of widowhood and higher healthcare costs.
• Divorce and timing of divorce can have an outsized impact on women’s overall retirement assets.
Women must make accommodations throughout their lives to help overcome the gender pay gap and bolster their retirement savings. Financial literacy and savings habits can both play a significant role in bolstering women’s financial security during retirement.
Financial Literacy Can Help Minimize the Gap
“Overall, it’s important to understand that the gender pay gap compounds over a lifetime,” says Catherine Azeles, CFP and investment consultant at Conrad Siegel. “People can think that it’s just a little bit of money now, but that thinking fails to take into account the impact that the pay gap will have over a lifetime.”
Azeles notes that women may have less confidence than men when talking about money, which can lead to missed opportunities when it comes to retirement savings. She advocates that women take a proactive approach to their financial education, including setting a budget and establishing long-term savings goals early on.
“Women can find ways to reduce their debt and establish a positive credit history,” says Azeles. The less debt women carry, the more money they’ll have available to save towards retirement. Better credit scores also mean lower borrowing costs and more options when women need to borrow money.
For women looking for ways to kick start their financial literacy, Azeles recommends taking part in education sessions that might be offered by their employer-sponsored retirement plans.
“Sometimes people are hesitant to sit in on these meetings because they’re afraid of being sold, but it’s best to put these feelings aside,” she says.
Beyond learning from workplace retirement plan education, women can actively seek out mentors to guide them professionally and financially. Having a mentor can boost a woman’s confidence levels, encouraging her to ask for higher salaries and better benefits packages. Higher compensation can help close the gender pay gap earlier in life and deliver increased savings throughout a woman’s lifetime.
Beat the Retirement Income Gap with Self-Employment
Depending on risk tolerance and available resources, self-employment is also an option for overcoming the gender pay gap in retirement.
Self-employment removes both a woman’s cap on earnings and puts her in charge of her own employer-sponsored retirement plans. Self-employment can also remove many barriers to earning, such as education and rigid work schedules that interfere with caregiving roles.
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While not a feasible route for some, Kathleen Owens, a financial advisor and fiduciary with Aurora Financial Planners, says mentorship options exist for women curious about taking charge of their own earning potential through self-employment.
“If a woman thinks she has what it takes to be self-employed, there are lots of mentor groups for the specific industry she is interested in,” Owens says. “Hopefully, you will have good help from someone who took the plunge before you and is willing to share their secret sauce for success.”
Divorce Considerations for the Gender Income Gap
According to the American Psychological Association, 40% to 50% of marriages in the U.S. end in divorce. Women often aren’t the ones in control of their household finances and don’t have a clear picture of the assets owned jointly and separately, including their spouse’s retirement savings.
Greater financial literacy gives women the tools they need to ensure they’re well-informed about household finances and, in the case of divorce, get their fair share of a spouse’s retirement savings during a split.
“Sometimes women are so eager to get out of a marriage they suffer financially by not taking the time to understand what their rights are to the assets in their marriage,” says Azeles.
If women think they might be heading for divorce, Azeles encourages taking a moment to get a full understanding of all the assets in their household, including their spouse’s retirement assets.
“Under all state laws, a pension earned during a marriage is a shared asset, but those assets aren’t automatically divided,” she says. When a woman receives her fair share of her spouse’s retirement assets, she can close the gender pay gap and acquire assets that can make up for the time she took out of the workforce for caregiving. Those assets can also help fill the savings gap created by years she didn’t contribute to an employer-sponsored retirement plan.
Long-Term Care and the Gender Income Gap
Since women are much more likely to act in caregiving roles than men, especially later in life for a spouse or aging parent, it’s key for women to have hard conversations about their own care as early as possible.
“Again, some people don’t want to have conversations about topics like long-term care insurance because they’re afraid of being sold,” says Azeles. “Knowing your options is important so you can choose how to lessen the burden of your care on your loved ones.”
Women tend to outlive men in the U.S. by five years, which means women will likely need more money to pay for healthcare expenses either through income or insurance. Having conversations about long-term care insurance can help women determine if they feel a policy is an accessible financial decision and the best timing for buying into a policy.
“Long-term care insurance has gone through some significant changes in the past few years, and the changes are not good for consumers,” says Owens, who sells insurance in her practice. “If you are able to get approved for a long-term care policy, the premiums will be expensive.”
There are alternatives to long-term care insurance, including a deferred fixed annuity. Consider a deferred fixed annuity purchased at age 65, which would not pay out until you turn 85. The proceeds could be used to pay the costs of long-term care, or replenish retirement savings if long-term care isn’t needed.
These policies provide greater flexibility than LTC insurance. Plus, you can use up to $100,000 of deferred contribution retirement funds to buy a deferred fixed annuity, with taxes on the withdrawal deferred until the annuity pays out.
Planning for the Long Term
Regardless of whether women have the means to access additional insurance to provide for care, the NIRS study demonstrates that women of all income levels have to take a more proactive approach to planning related to caregiving.
“Having a conversation about managing healthcare is a fantastic idea,” says Owens. The primary challenge, however, is finding a starting place for those conversations with your loved ones.
Ultimately, early planning and frequent discussions about money are crucial to overcoming retirement income and care issues related to the gender pay gap. “Life doesn’t always go as planned,” Azeles says. “Consult a financial professional, talk openly about your long-term goals, and create a plan to revisit those plans often.”
With a commitment to financial literacy and the ensuing confidence that stems from increased knowledge about money, women can make significant strides to increasing their retirement savings and planning for life events that could place stress on the money they do have saved.
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