When it comes to retirement savings, there exists a significant gender gap that needs attention. Women, particularly those aged between 55 and 66, often find themselves with less saved up for retirement compared to men. Astonishingly, approximately 50% of women in this age group have no personal retirement savings at all, while the same holds true for 47% of men. Additionally, women tend to allocate a smaller portion of their salaries towards retirement, with an average of 6.2%, contrasting men’s 6.6%. This disparity underscores a crucial issue that demands examination and resolution
The root of this savings gap can be traced back to underlying problems like the persistent gender pay gap. Despite the existence of The Equal Pay Act of 1963, which prohibits unequal pay for the same job based on gender, women still typically earn less than men. Consequently, this earnings disparity often necessitates women to work for more extended periods before they can retire. Furthermore, the fact that women generally outlive men highlights the critical need for them to amass more substantial savings to sustain themselves in their later years
Retirement Savings: Men vs. Women
Federal data reveals a stark reality – a mere 22% of women have saved $100,000 or more for retirement, lagging behind the 30% of men who have achieved this milestone. This disparity is primarily fueled by the ongoing gender pay gap issue, where women, on average, earn 84 cents for every dollar earned by men, a concerning ratio that has remained stagnant for nearly two decades
Another study by the Transamerica Center for Retirement Studies estimates that the median retirement savings for women stand at $43,000, less than half of men’s savings that average $91,000. Furthermore, men are significantly more likely than women to have saved $250,000 or more for retirement — 32% versus 21%. Notably, the study also highlights that 25% of women have saved less than $10,000 or nothing at all, in contrast to 16% of men
A comparison of the median retirement savings across generations reveals a substantial gap between men and women:
Total Median Retirement Savings by Generation: Women vs. Men
– Baby Boomers: $101,000 vs. $248,000
– Generation X: $51,000 vs. $127,000
– Millennials: $29,000 vs. $63,000
– Generation Z: $26,000 vs. $42,000
Source: Transamerica Center for Retirement Studies
The impact of the COVID-19 pandemic on retirement savings has been profound, with approximately 4 million individuals in the U.S. being out of work for extended periods, leading to detrimental effects on retirement planning, especially for women who bore a disproportionate share of job losses. Regrettably, this setback is anticipated to have long-lasting repercussions
Why a Retirement Savings Gender Gap Exists
The disparity in retirement savings can be attributed to various factors that have historically impeded women from saving adequately for retirement. A significant contributor to this disparity is the gender wage gap. In the United States, women working full-time earn around 84 cents for every dollar earned by men annually, resulting in a wage gap of $10,000 per year. This gap is further exacerbated for women of color and women with disabilities, who face even more substantial salary differentials compared to their male counterparts
Lower earnings translate into diminished retirement savings for women. Workforce interruptions due to maternity leave or caretaking responsibilities often reduce a woman’s Social Security benefits and contribute to a lower net worth. On average, a woman’s net worth amounts to $5,541, significantly lower than the average net worth of $12,188 for men
In 2023, the average monthly Social Security benefit for women was approximately $1,484, significantly less than the $1,838 received by men in that same year. These figures underscore the financial challenges women face in retirement planning
Other contributing factors to the retirement savings gender gap include:
- Women often prioritize different financial goals such as emergency funds, debt repayment, and child support over retirement savings, affecting their ability to accumulate sufficient savings.
- Access to employer-sponsored retirement plans is typically lower for women, especially part-time workers, resulting in fewer opportunities for contributions to retirement accounts like 401(k)s.
- Many women are compelled to prematurely withdraw from their retirement savings, hindering long-term growth potential.
- Unpaid responsibilities like childcare and eldercare lead to career interruptions during peak earning years.
Taking parental leave can have significant impacts on lifetime Social Security benefits, with each three-month leave potentially reducing retirement benefits by $45,300
An additional factor contributing to the persistent retirement savings gap is the discrepancy in financial literacy. Knowledge is a crucial asset, particularly concerning retirement savings
On average, women in the U.S. demonstrate lower financial literacy compared to men. This gap is even more pronounced among underrepresented minority women, who exhibit lower levels of financial literacy relative to their white counterparts. The disparity in financial literacy levels underscores a critical area for improvement
Multiple factors contribute to the lower financial literacy levels among women, including discomfort in financial discussions and a lack of awareness regarding reliable sources of financial information
How to Narrow the Gender Retirement Savings Gap
Closing the gender retirement savings gap demands a dual approach of enhancing financial literacy and implementing policy changes. Acquiring knowledge on saving for retirement is paramount. Initiating the learning process early, irrespective of age, is crucial. There are numerous resources available to aid in starting or growing retirement savings
For individuals requiring time off due to family commitments or working part-time without access to retirement plans, policy adjustments can have a significant impact. The implementation of a paid Family and Medical Leave Act (FMLA) at the federal level could prove instrumental. Presently, only 13 states and Washington D.C. have introduced mandatory paid family leave systems. Additionally, certain states provide optional paid family and medical leave insurance programs, highlighting the need for broader coverage
Addressing the wage gap may require substantial policy shifts to effect real change. A notable example is Iceland’s legislation mandating companies with 25 or more employees to confirm equal pay for men and women, enforced by daily fines for non-compliance
In the U.S., there is a push towards narrowing financial disparities between men and women, with President Joe Biden announcing the establishment of the White House Council on Gender Equality
Equal Pay Day, observed on March 12, 2024, draws attention to the enduring gender wage gap issue. Its inception in 1996 by the National Committee on Pay Equity aims to highlight the extent to which women need to work into the new year to match men’s previous year’s earnings, underscoring the persisting wage disparity
How Long Will Retirement Savings Last?
The longevity of your retirement savings hinges on various factors, including post-retirement living expenses, the amount of savings and income, and your lifespan. The 4% rule, a common guideline recommending an estimated annual withdrawal of 4% from retirement savings over 30 years of retirement, coupled with other income sources like Social Security, can help ensure sustainable retirement funding. For instance, planning to withdraw $40,000 annually for 25 years necessitates a nest egg of about $1 million
What Is the Average Retirement Savings?
In Q3 2023, the average IRA balance stood at $109,600, marking a 4% decrease from the prior quarter but an 8% uptick from the previous year. Similarly, the average 401(k) balance decreased to $107,700, down by 4% from the preceding quarter. The average 403(b) account balance was reported at $97,200, reflecting a 5% decline from the previous quarter but an 11% increase from the prior year
How Do You Start Saving for Retirement?
Commence your retirement savings journey by contributing to a tax-advantaged retirement plan or account. If your employer offers a 401(k) plan, automatic paycheck deductions can simplify contributions. Alternatively, setting up and contributing to a traditional or Roth IRA, or both, is a viable option if a 401(k) isn’t available
The Bottom Line
The persistent gender wage gap, despite narrowing, underscores the financial challenges women continue to face, earning approximately 84 cents for every dollar earned by their male counterparts. This income gap cascades into lower net worth and savings, directly impacting retirement funding
Efforts to bridge the gender wage gap and enact meaningful policy reforms are crucial steps towards bolstering retirement savings for all individuals in the U.S. Enhancing financial literacy alongside substantive policy changes can significantly contribute to leveling the playing field regarding retirement savings opportunities