For a variety of reasons, women generally enter retirement with less money than men and then they face several additional challenges in retirement that put them even further behind their male counterparts. Numerous organizations have examined this quandary and have identified some of the key factors that have led to this result, commonly referred to as the “Gender Retirement Gap.”
In breaking out these gender-specific retirement issues into two phases, the accumulation phase and the retirement phase, we can more easily understand the unique challenges women are confronted with. The following factors were shared by a panel of speakers from TIAA and JPMorgan at the Pension & Investment 401(k)/403(b) conference this past spring.
During the accumulation phase, women typically:
- Work fewer years – Women spend fewer years in the workforce because they are more likely to stay home to care for young children; and they are also more likely to care for elderly parents during their mid-career. Consequently, they are less likely to qualify for company-sponsored plans and are less likely to receive the full benefits of those plans.
- Earn less compensation – Most sources indicate that women earn about 75 cents for every dollar a man earns. This is what is commonly referred to as the gender pay gap.
- Take on less investment risk – Taking on less investment risk often results in lower investment returns. This theme is prevalent for women inside and outside of their retirement accounts. However, it is worth noting here that since the enactment of the Pension Protection Act (PPA) and the introduction of Qualified Default Investment Alternatives (QDIA), the variability of risk-assumed in retirement accounts between men and women has tapered.
In the retirement phase, women typically:
- Live longer – Women on average outlive men by 2.5 years, but this does not truly reflect the financial impact that this has for women in retirement. Intuitively, one would interpret this statistic to mean that women need to make their money last an additional 2.5 years. However, the reality is that women are frequently married to men that are older than themselves which extends the time period that women need make their retirement savings last.
- Spend more on healthcare – Healthcare expenses increase with age, but data from the Department of Health and Human services indicate that women spend an additional 7% over men. This is not solely attributable to women living longer, but also because women are more likely to experience bouts of chronic illness later in life. Where longevity does factor in is that women are less likely to benefit from a spousal caretaker potentially requiring them to spend on nurses or at-home care.
While this information may sound discouraging for women, this data perhaps provides education opportunities to better equip women to make informed decisions.