Women Face Unique Challenges in Retirement Preparedness
By Christle Johnson, QKA, CIP
Saving enough for retirement is difficult for most Americans. Unfortunately, it can be even more difficult for women. Women tend to face more challenges in preparing for retirement than their male counterparts. They typically earn less, live longer, and face higher lifetime healthcare costs. These factors can become obstacles for women trying to save for retirement. By understanding the obstacles, you can help your women clients who may be lagging behind in retirement preparedness catch up and even pull ahead.
Retirement Savings Shortfall
Just how wide is the retirement savings gap between men and women? One report found that the average retirement savings shortfall for women was nearly twice that of men: $72,883 for single women versus $37,690 for single men. Even worse, 10% of single women have a retirement savings shortfall of at least $222,592. Another report shows that only 31% of women believe that they are on target for a secure retirement compared to 38% of men. Overall, the findings confirm that women savers experience greater retirement savings shortfalls than men. This is also evident once women reach their retirement years and find that they must rely more heavily on other sources of income.
The Social Security Administration (SSA) released a report in July 2019 highlighting the degree to which women relied on Social Security benefits in 2017 (the latest available data). It found that of those who receive Social Security benefits, unmarried women (including widows) relied on Social Security for 45% of their total income, compared to 32% for unmarried men and 27% for couples.
Gender Earnings Gap
One reason for the apparent retirement savings shortfall is that, on average, women earn less than men. This is a major obstacle to women saving effectively for retirement. The U.S. Bureau of Labor Statistics reported an 18.6% wage gap between women and men during the second quarter of 2019. Put another way, median weekly full-time employment earnings for women were $814 for every $1,000 earned by men for full-time, year-round work.
A similar finding reported by the IRS is that median income for working-age, full-time, year-round workers in 2016 was approximately $40,000 for women, compared to roughly $50,000 for men.
Career Breaks
In addition to potentially earning less during working years, women tend to work fewer years over their lifetime, yet another obstacle for women to overcome. Women generally are more apt to take breaks from work or turn down promotions because of family care obligations. These career breaks often turn into savings breaks, with less—or no—income during such periods leading to an inability to save for retirement. Once reemployed, it is often on a part-time basis or at a lower wage, setting them back just when they are starting to save again.
Longevity Risk
Another challenge women face is the mixed blessing of greater life expectancy. On average, women live longer than men. The SSA reports that the average life expectancy for women is 86.7 years and 84.3 years for men. Thus, women are more likely than men to outlive their savings, and to have a longer lifetime in which to incur healthcare expenses. Ideally, women should be saving as much or more than men in order to have enough to support themselves throughout their retirement years.
Also worth noting, more women than men remain single after divorce or becoming widowed, making it even more difficult to save for a financially comfortable retirement or share life expenses.
Solutions to Help Women Prepare for Retirement
While the picture isn’t entirely bleak, it is a bit dreary. By providing your clients—especially women—with reliable, useful consumer education and encouraging them to consider the following options, you can help put them in a better position to reach their retirement savings goals.
Saving in an IRA, if eligible (if little or no income and married, contributions can be made based on a spouse’s earned income)
Contributing to a health savings account (HSA), if eligible, to save for future healthcare expenses (or other expenses after age 65 if not needed for healthcare)
Saving in a retirement plan—at least enough to receive any “free money” in the form of an employer contribution
Taking advantage of the federal saver’s credit if eligible (see Form 8880, Credit for Qualified Retirement Savings Contributions)
Opening a small business retirement plan (SEP, SIMPLE, or Individual(k)™), if eligible
Learning more about making good investing decisions
Seeking financial assistance from experts who are committed to their clients’ retirement security
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