Why Women Fall Behind in Retirement

Gender Retirement Gap
Marla Brill

By Marla Brill | Oct 7th, 2020

Most people picture retirement as a time to kick back, relax, and finally do the things they want when they want to. But studies show that if you are a woman, the financial challenges you face over a lifetime make that vision less attainable than if you were a man. 

Women fall victim to this “retirement gender gap” for a variety of reasons:

They have lower incomes and longer employment gaps. The ongoing gender pay gap cuts into retirement savings. Women earn just $0.80 for every $1 earned by men, according to the Women’s Institute for a Secure Retirement. And the majority of working women earn less than $40,000 a year. Time away from the workforce to care for children or family members also cuts into retirement savings. Among baby boomers responsibilities and costs for parental caregiving often fall to women, who must take time off from work to carry out these responsibilities. 

“The gender income gap is contributing to a domino effect on women’s finances; lower earnings can have an effect on their current financial decisions which ultimately impacts their financial futures,” says Judith Ward, senior financial planner at T. Rowe Price. 

They avoid long-term planning and investing. Couples typically take an approach to finances in which women take care of day-to-day expenses and men do the long-term planning and investing, according to a survey of over 3,600 high net worth married, divorced, and widowed women in the U.S. by financial services firm UBS. Turning a blind eye to investment decisions can have profound negative consequences. The study found that an overwhelming number of widows and divorcees (74 percent) discovered negative financial surprises when they were forced to take control.

They often outlive men. In the U.S., a woman age 60 can expect to live to age 84.6, according to the Social Security Administration, compared to age 81.6 for a man. Women often marry men who are older than they are, which makes the survival gap in favor of women even wider. This means women need to stretch their retirement dollars over a longer period.

They think being married will protect them. Married women typically have higher household earnings, greater financial assets, more home equity, and more retirement savings than single and divorced women, reports the Center for Retirement Research at Boston College. Given the much stronger economic position of married women, the expectation might be that they are better off in retirement than their single counterparts.

This is not the case for several reasons. First, many women do not accumulate enough lifetime earnings to exceed the Social Security spousal benefit, which equals 50 percent of the worker’s benefit. That puts one-earner couples, which usually have a lower household income before retirement, on a level playing field with two-earner couples when it comes to Social Security. Second, while a couple may have two workers only one, most often the husband, may be saving for retirement. Lastly, many married women have been through divorce, which often leaves lasting financial scars. 

They don’t take saving seriously enough. Baby boomer women have a median 401(k) savings balance of $59,000, far less than half the $138,000 median balance of Boomer men, according to a recent T. Rowe Price survey. 

They undervalue retirement benefits in a divorce. All too often women overlook getting their fair share of retirement assets in a divorce according to a report at wiserwomen.org by Washington, D.C. attorney Anne E. Moss, who specializes in dividing retirement benefits in a divorce. “Think carefully before waiving your right to pension benefits in exchange for your husband’s share of the house,” she advises. “This is a common arrangement but not always the best option.” If you sell the house a few years after the divorce commissions, closing costs, and repairs could easily wipe out any gain in value. 

What can women do?

Become more involved in financial decisions. “As women around the world live longer, the likelihood of becoming widowed or divorced increases. It’s critically important that women not only understand, but are also engaged in key, long-term financial decisions,” says Jane Schwartzberg, Head of Strategic Client Segments at UBS Global Wealth Management.

Don’t skimp on retirement savings. Working couples should both be contributing as much as possible to their retirement plans, if they’re available. The same holds true for single and divorced women. 

Become familiar with caregiving resources. Many women who are considering take time off from work to care for family members might be able to avoid reducing hours or leaving jobs by making full use of government resources. The U.S. Administration on Aging’s Eldercare Locator (800-677-1116; eldercare.gov) can help you locate them. 

Don’t underestimate the value of pension benefits. Evaluate carefully whether it makes sense to give up future pension benefits in exchange for home equity in a divorce, and make sure the divorce attorney you use has experience dividing pension plans and drafting qualified domestic relations orders (QDROs) necessary to gain access to pension benefits. Iron out details such as survivor’s benefits, and what will happen if you remarry. 

Marla Brill

Marla Brill

Marla Brill has been a personal finance journalist for over 30 years,  writing about money topics for Reuters, The Boston Globe, Financial Advisor Magazine, MarketWatch, PBS’s NextAvenue, and other publications.

The Gender Retirement Gap Women Face (And How to Close it)

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