Since the ratification of the 19th Amendment, women have made substantial gains to men in education, employment, and earnings. Their status in retirement, however, has received far less attention.
For a variety of reasons, women earn less on average over the course of a lifetime than men. Lower lifetime earnings make it harder for women to save for retirement. Other barriers for women include living longer, more risk averse, less financially literate, and more likely to have greater caregiving responsibilities than their male counterparts.
Earnings
For several reasons, average lifetime earnings are substantially lower for women than for men. Primarily, women provide a majority of unpaid family caregiving, which can lead women to interrupt their careers, seek part-time jobs in the market, or work in low-wage occupations to maintain flexibility.
- Caregiving provided during women’s 20s and 30s, when careers are formed and when age-earnings profiles are relatively steep, creates career-long earning losses.
- Women are also more likely than men to care for their aging parents – a responsibility that mainly falls on women over the age of 50. People who leave the labor force early to care for a parent lose an average of $142,000 in wages.1
From earnings to retirement wealth
Lower earnings lead to lower retirement wealth. The most important link is through Social Security, which provides over half of family income to 52% of the elderly and at least 90% of income to 25% of the elderly.2 Women receive Social Security benefits that are, on average, 80% of those men receive. Benefits are based on a person’s 35 highest earning years. Women with long career interruptions risk not having 35 years with positive earnings, and wage gaps further reduce women’s benefits.
There’s also the motherhood penalty – having a first child reduces a woman’s Social Security benefits (through reduced earnings) by an average of 16%. Each additional child increases the gap by 2%.2 Women who leave work to care for an elderly family member not only lose wages, they also lose an average of $131,000 in lifetime Social Security benefits.2 Spouses can choose to receive benefits based on their own earnings history or to receive half of their spouse’s benefit. Given the trends in employment, earnings, and marriage, women are increasingly choosing to receive their own benefits.
Although access to the ADP TotalSource Retirement Savings Plan (the “Plan”) is not limited by gender, Plan data shows that the average account balance for women is $18,000 less than the average of men.3 Plan data also shows that the average savings rate for women is only 0.3% less than men leading to the conclusion that most of this difference is the result of wage disparity rather than saving behavior.3 Lower lifetime earnings reduce the amount of retirement wealth women can accumulate in the Plan.
From retirement wealth to retirement security
For a given amount of wealth, women face several obstacles relative to men in maintaining living standards in retirement.
- Women tend to live longer than men and therefore, have to draw down their retirement wealth over a longer period of time. According to the National Center for Health Statistics, the average life expectancy for women in the U.S. is 80.5 years, compared to 75.1 years for men.4
- Women receive significantly less retirement benefits than men, with Social Security playing a key role. As mentioned earlier, a major component of the Social Security Administration’s formula for determining benefits is the amount of income earned while in the workforce. As men have higher incomes on average versus women, it follows that men have higher Social Security benefits on average than women.
- Women face higher healthcare costs than men. According to the Retiree Health Cost Index, a 65-year-old woman retiring today should expect to spend about $155,000 on healthcare versus the $134,000 that a 65-year-old man can expect.5The biggest driver of this difference is not only the longer lifespan of women, but also the fact that women see their doctor more often during their lifetimes to seek out preventive care.
Is reform the answer?
Although gender inequality is a pervasive problem, changes in economic policies may help reduce disparities between men and women. Fixing a retirement system that was not designed to accommodate women’s experiences will require significant changes – not just in policy but in labor market practices, as well.
Policies for consideration include:
- A robust federal paid family and medical leave program would allow saving for retirement and earning Social Security credits while providing care to children and relatives. Under such a program, employers would be required to provide employees a certain amount of paid time off for caregiving, parental leave, and periods of illness. Eight states and the District of Columbia already have such programs. In addition, under a Social Security caregiver credit, the government would assign a value to caregiving work that would be used as part of Social Security benefit calculations. The U.K., France, Germany, and Sweden provide caregiver credits for public pensions and former President Trump and President Biden have called for the U.S. to adopt a version of this policy.
- Adoption of a nationwide automatic IRA program could help part-time and lower-wage workers not eligible for or covered by an employer-sponsored plan save for retirement. An increasing number of states have already launched their own auto-IRAs. Expanding the saver’s tax credit to make it refundable and to provide higher effective matching rates would raise the return to saving for women with low and moderate incomes.
- Strengthening the social safety net by boosting Supplemental Security Income benefits to close the gap between Social Security income and the poverty threshold could lift nearly 5 million elderly people, a majority of whom are women, out of poverty. Increased support from Medicare and Medicaid for end-of-life care could alleviate the stress on widows.
While differences in economic outcomes between men and women are sizable, they are falling over time. Policymakers can accelerate that change and help bring about gender equity.
Women face unique challenges when it comes to planning for retirement, but these challenges don’t have to derail their plans. With careful planning and preparation, they can enjoy the retirement they’ve always dreamed of.
