MUCH of the retirement savings advice offered online, and even by financial professionals, is intended for a wide audience. Unfortunately, it often does not take into account the needs that specific groups, including women, may have.
Because of factors like the wage gap between men and women and differences in financial literacy, women can benefit from retirement advice specifically tailored to their unique experiences. Steps like self-advocacy, financial education and establishing financial building blocks can help them better prepare for retirement.
The state of women’s retirement savings
Data consistently shows that women are less prepared for retirement than men. The US Census Bureau’s Survey of Income and Programme Participation (SIPP) found, for instance, that women aged 55 to 66 are more likely than men to have no retirement savings.
Less preparation also means women are at greater risk of running out of money during retirement.
A variety of factors contribute to these trends — and to the overall need for retirement savings advice that is more tailored to women — including longer lifespans, the gender wage gap (in 2022, women made only 82 percent of what men did), the time women may spend outside of the workforce caring for family and other loved ones, and even a lack of financial knowledge and confidence.
Here is a look at how each of these factors contributes to women’s lack of retirement preparation:
- Women live longer: According to data from the National Vital Statistics System for 2021 (the last year for which data is available), life expectancy in the United States is 76,4 years. But there is a considerable divergence between women’s and men’s life expectancies — women have a life expectancy of 79,3 years, while men have a life expectancy of just 73,5 years.
The nearly six-year difference between men’s and women’s expected lifespans plays an important role in retirement planning for both sexes.
“One risk that threatens women’s retirement security is the unexpected, premature death of a partner,” says Valerie Leonard, a financial adviser and CEO of EverThrive Financial Group in Alabama.
Imagine a married, heterosexual couple that has retired without savings and only their two monthly Social Security cheques to support them. If the husband passes away, the wife has suddenly lost a considerable portion of her household income (even though Social Security will pay her the higher of the two benefits following the death of a spouse).
- Work experiences put women at a disadvantage: Women’s experience with the workforce significantly impacts their ability to save for retirement. First and foremost, women are generally paid less than men. According to the latest data from the US Bureau of Labor Statistics, full-time working women are paid 83,7 percent of what their male counterparts receive. That disparity exists across all different educational levels and industries.
A second important factor: Employer contributions to employee retirement accounts like 401(k)s are often based on a percentage of wages. For example, an employer might agree to contribute up to 3 percent of each worker’s salary to their retirement plans. That means the higher a worker’s wages, the more retirement contributions they can receive from their employer.
Finally, Social Security earnings are based on a worker’s income during their lifetime. Because women tend to get paid less during their working years, they also receive, on average, only 80 percent of what men receive in Social Security benefits.
- Time away from work: In addition to a woman’s lower wages, we must also consider how traditional familial responsibilities can impact the ability to save.
According to the Bureau of Labour Statistics, in 2022, 72,9 percent of mothers and 92,9 percent of fathers with children under the age of 18 were either working or looking for work. The discrepancy in these statistics between women and men makes it clear that mothers are far more likely than fathers to exit the workforce while they have children.
During those years when women are not working, they also are not contributing to their own retirement accounts.
Even women who have rejoined the workforce — or never left it to begin with — may see their retirement savings impacted by their family duties. Mothers are more likely than fathers to work part-time and, even when working, are more than 10 times more likely to leave work to care for sick children.
Women’s familial responsibilities often extend past just their children, too.
Adult daughters spend more than twice as much time as adult sons caring for elderly parents. And like women who leave work — either temporarily or permanently — to care for children, devoting time to family instead of working can affect women’s standing at work, their wages and, ultimately, their retirement savings.
- Many women lack financial confidence: A final factor that may impact a woman’s ability to save for retirement is her financial literacy and confidence — or lack thereof.
The Investopedia 2022 Financial Literacy Study found that women are less confident than men when it comes to their perceived financial knowledge.
While most women (63 percent) said they feel they have advanced knowledge of practical know-how when it comes to finances, only 1 in 3 feel they understand traditional financial products like insurance, investments, and savings — which are key components of retirement planning. In 2023, a Morgan Stanley study found 36 percent of women are not confident they will be able to retire comfortably, compared with just 21 percent of men.
Similarly, US Bank found 46 percent of Boomer women, 53 percent of Gen X women and 71 percent of Millennial and Gen Z women felt confident in their ability to manage their finances, versus 49 percent, 63 percent, and 75 percent of men in the respective generations.
This faltering confidence can lead women to shy away from managing their own finances and perhaps handing it — and even their retirement planning — to male partners. Carbonaro has seen this effect up close, even among teens.
“I did a presentation at a wealthy high school and asked the girls, ‘how many of you will be taking care of your future finances?’” says Carbonaro. “Less than 5 percent of the hands went up. These were girls aged 14 to 18. Fear is a big reason.”
Girls and young women may be taught primarily through a lens of “be careful with money” with lessons about how to budget, save money and overcome impulsive shopping habits, while men are encouraged to earn and invest.
“To me, it’s clear that we are not doing enough between elementary school and high school to equip these young girls and build their confidence so that they feel they can take control of their financial future,” Leonard says.
- What women can do: Much of the information we have shared so far can paint a bleak picture of women’s prospects of a comfortable retirement. The good news is there are plenty of steps women can take to improve their financial literacy and retirement savings plans.
- Advocate for yourself in the workplace: One of the most important things women can do to improve their retirement prospects is to advocate for themselves at work.
“Advocacy is extremely important in the workplace, and it starts with helping women understand their own worth and weaknesses that can be strengthened,” Leonard says. “Building confidence, resilience and negotiating skills in women is critical to success in the workplace.”
Some of the things women can advocate and negotiate for include higher wages, higher retirement contributions and better family leave policies. Of course, male partners and colleagues can and should also lobby employers to improve pay and benefits for women.
“Getting male counterparts and other women involved in the conversation can help promote women’s disparity issues,” Leonard says.
Advocacy also does not have to end at women’s own workplaces. Eleven states and the District of Columbia have enacted paid family leave programmes. Similarly, 16 states and the District of Columbia require paid sick leave for private sector employees.
These policies can make it easier for women to remain in the workforce while also tending to family duties.
- Seek educational resources: In addition to Investopedia, reputable sources for financial education can help close the knowledge gap for women.
Additionally, many banks and credit unions offer financial literacy and education programmes that may be free for current account holders. These programs can help you learn everything, from balancing a bank account to investing for retirement.
- Make a plan for retirement: The earlier and more diligently you start saving for the day you leave the workforce, the more prepared and comfortable you will be when that day comes.
First, designate a certain percentage that you will set aside for retirement each month. Experts generally recommend saving 15 percent of your income, but you can choose a number that fits your budget. And if you are unsure of how much you can save, start low and commit to increasing your savings by a certain percentage each year.
Make sure also to plan for how you will stay committed to your retirement plan if you take breaks from the workforce. While you will not be earning employer retirement contributions or accruing working years towards your Social Security earnings, you can still save.
“Don’t forget that stay-at-home parents may still be eligible to contribute to an IRA. If you are married, file a joint federal income tax return, and earn less than your spouse, an IRA contribution can still help keep you on track for retirement,” Leonard says.
- The bottom line: Women may be at a disadvantage when it comes to retirement savings because of their longer lifespans, lower lifetime wages and lack of financial literacy. But by starting with the building blocks — self-advocacy, education and budgeting — women can take steps to improve their retirement prospects and level the playing field.
“We have to teach women how to organise their finances so that they are prepared for their journey, we need to help them understand the basics of managing cash flow so they can put one foot in front of the other, and we need to demonstrate how to put emergency and retirement savings on autopilot,” Leonard says. — IOL
