Profiles In The Advisory Practice

The Gender Retirement Gap

It’s not only vast, it is long lasting

This article is excerpted and reprised from the October 2016 TIAA Income Insights report, The Gender Retirement Gap, by Diane Garnick. Reprinted with permission. Visit

Women face hurdles during their savings years and then face a second, equally difficult, set of challenges
throughout retirement. A cursory view of the US retirement system may appear to be gender neutral; however, after carefully reviewing the data, the Gender Retirement Gap and the significant barriers women face is clear.

We live in an era where gender equality is increasingly becoming the norm, but we also happen to live during a time with ample access to the data and tools necessary to draw conclusions. The data enables us to identify the obstacles women face during their savings and retirement phases. The tools enable us to provide the clarity necessary for resolving the problem at hand.

It is logical to believe that two recent college graduates, one male and one female, starting in the same position, for the same company at, the same salary, each saving the same amount for retirement, would be equally well off at retirement. Unfortunately, that is not the case. In order for the two recent college graduates to have the same amount of money saved
for retirement, the man would need to save 10% of his salary while the woman would need to save 18%. Generally speaking, women work for less years and receive fewer salary increases among other issues.

Women face three key retirement issues during the savings phase

Many companies develop the same qualified default investment alternative (QDIA) retirement
strategy for all workers. They focus on the national averages or the average experiences of
their own workers by applying saving rates, investment choices, and retirement spending
strategies without regard to gender differences. Intuitively this may seem fair, but it masks
the reality that many women face.

Relying on the average career path to design a retirement strategy can certainly benefit some
people; however, this can also lead to a false sense of security for many women.

Throughout their careers, when both men and women are supposed
to be saving for retirement, women face greater challenges than men.

  • Women work fewer years over the course of their lives.
  • When they do work, women earn less compensation than men.
  • Women take on less investment risk, which results in lower investment returns.

1. Fewer years in the workforce

Many retirement strategies assume workers will be in the workforce for 40 years. The data
demonstrates that neither men nor women tend to work that many years. Frequently, women
take time off to have children and then do so again later in life to care to for elder parents.
These career breaks add up, resulting in women spending significantly fewer years in the

While men work an average of 38 years, women only average
29 years. This nine year shortfall means that women work 75% of the years that men work.
This fact alone makes it immediately obvious that women need to save a higher percentage
of their salary while they are working.

The past decade has marked an important shift in American culture. The number of women
opting to leave the workforce to care for their children is on the rise. According to the Pew
Research Center, at the turn of the century there were 23% stay-at-home mothers (SAHM).
Today the number is nearly 30%. The largest share of SAHM are married women with working
husbands. This may seem surprising given the increase in educational achievement over that
period. In 1970 only 7% of SAHM were college graduates, compared to 25% today.

Leaving the workforce to care for children is not the only career break that women typically
take. Later in life women find themselves leaving the workforce again to care for elderly
parents, or in-laws. During the mid-career phase, while many men are enjoying salary
increases, women are spending twice as much time as men caring for their families.

2. Gender pay gap

Deemphasizing careers during both the beginning and middle phases impacts more than just
total years worked, it also limits the growth of pay for women. During periods when women
are working, the gender pay gap persists.

According to the US Census Bureau, in the general population women still only earn 78 cents
on the dollar relative to men. Women classified as professionals are even worse off.
Professional women earned $996 per week in 2015, compared to professional men who
earned $1,383, or, stated another way, 72 cents on the dollar.

3. Women tend to be more risk averse

Many women choose not to leave the workforce and are fortunate enough to find jobs where
the gender pay gap is immaterial. In spite of these successes, these women face yet another
hurdle; women can be much more risk averse than men and therefore invest somewhat

They trade and rebalance their portfolios less often, seek to protect the assets
they have, and are much less likely to endure risk in hopes of generating higher returns.
One of the keys to long-term investment success is the ability to take well-chosen risks,
notably equity risk, the principal source of long-term investment returns. In this regard,
women are not particularly effective investors.

Since the introduction of the Pension
Protection Act and Qualified Default Investment Alternatives (QDIAs) the investment return
differences between men and women in tax-deferred retirement accounts such as 401(k)’s
and 403(b)’s have been minimized. This is most likely due to the widespread popularity of
people selecting the default option and taking no further action.

However, outside of their retirement accounts, women tend to hold considerably safer assets
such as cash and money market funds whereas men tend to hold more stocks, mutual
funds, and exchange-traded funds (ETFs). This is important because many households have
a lot of assets that are not tax-deferred. With this difference in risk preferences, or mix of
investments, women will almost certainly underperform over long periods of time resulting in
smaller retirement balances.

Men play catch, women play catch-up
We have highlighted three primary hurdles that women face while saving for retirement: fewer
years in the workforce, lower levels of compensation and risk aversion. Collectively, these
make saving for retirement a complicated task. Many women simply use averages or the
default options offered by their company’s retirement plan. Unfortunately, these women do
not discover that they have inadequate savings until they are well into their careers or, worse,
until they are retired.

For a man and a woman to have an equal amount of savings at the moment of retirement,
a man would need to save 10% of his salary whereas a woman would need to save 18% of
her salary. To put this in perspective, for professionals earning $100,000 a year, closing the
Gender Retirement Gap requires that women save an additional $667 a month.

Unfortunately, this additional savings only results in economic parity at the moment of
retirement. Throughout retirement, women face a second set of hurdles and saving an
equivalent amount of assets is simply not enough.

Women face additional expenses during the retirement phase
Many couples plan their retirement finances together without immediately recognizing how
much more expensive retirement will be for women. Unlike other expenses throughout the
course of their lives, the hurdles women face in retirement are not easily managed.

Financing retirement needs is distinctly different for women:

  • Women live longer.
  • Women spend more money on healthcare.

4. The longevity illusion

On one hand, many of us strive to live longer lives. On the other hand, there is an implicit cost
and risk of outliving your assets with each passing birthday. It’s no secret that women live longer
than men.

Once they reach age 65, women outlive men by 2.5 years with life expectancies of
85.5 and 83 respectively. Frequently women believe this means they will live 2.5 years longer
than their spouse. This is not generally the case. This would only be true if the spouses were
the same age. In the US today the average age spread between spouses is 2.1 years.
Naturally, this leads to another false conclusion that women will live alone for 4.6 years.
Examining the Social Security data closely, we discover that after a couple reaches the age
of 65 about 1/³ of the men will outlive their wives whereas ²/³ of the women will outlive their
husbands. The surprise in the findings is that after losing a spouse the surviving spouse will
live another decade.

Women with husbands who are 2.5 years older should expect to be the sole breadwinner of
their households for over a decade. The expenses of living alone are dramatically higher than
when two people have the opportunity to share household expenses.

5. Higher healthcare expenses

While men work an average of 38 years, women only average 29 years. This nine year shortfall means that women work 75% of the years that men work

Healthcare and housing expenses in retirement are much higher than most people expect.
They not only represent a large portion of household expenses at retirement, but they
continue to dominate budgets as we age. While housing costs can be reduced by downsizing,
healthcare costs are not as easy to manage. Unlike housing, healthcare expenses increase
with age. This is a major cause of concern as some of the most expensive illnesses tend to
occur later in life.

It is easy to think that the only reason women spend more money on healthcare is because
they live longer. The data suggests there is more to the story. According to the Department
of Health and Human Services from the age of 65 forward men will spend $18,251 on
healthcare whereas women will spend $19,558. This 7% additional spending on healthcare
can be attributed to women being more likely to have periods where they suffer through a
chronic illness and, as the previous section highlights, they are much less likely to benefit
from a spouse-caretaker. They also forecast that healthcare expenses will rise at a rate of
5.8% per year between 2015 and 2025, a growth rate that will impact the financial security
of many women.

Gender Retirement Gap solutions
Women enter retirement facing significant headwinds. The economics of retirement for
women is starkly different than for men. Women work fewer years, at lower levels of
compensation and earn lower returns with their savings. These factors combine to create
a resource constraint for women in their golden years. In spite of the fact that women will
have fewer economic resources at their disposal, they will incur higher expenses during the
retirement phase of their lives, the most prominent one being healthcare.

Despite these odds, countless women successfully prepare for retirement and earn financial
security. There are many possible strategies that could lead every woman down the path to
success. Below are three noteworthy solutions that are easy to implement.

Simple solutions include:

  • Supplemental savings; even beyond tax deferred amounts
  • Higher levels of risk with savings; marginal equity exposure
  • Higher level of guaranteed lifetime income

A. Supplemental savings

Many companies anchor their retirement savings rates to compensation. The data
demonstrates that women work fewer years and earn lower levels of compensation
throughout their careers. For these women, relying on an average retirement savings rate set
by their company may not result in enough savings for them to achieve economic freedom in

The Internal Revenue Service currently sets two distinct annual maximum contribution levels
for retirement savings. For women with earned income, that level is relatively high; $18,000
in 2016. For women who are taking a break from the workforce, however, that level is
incredibly low: $5,500 in 2016. For almost all women, even though the word “maximum” is
used, saving the full amount may prove to be insufficient.

As we have emphasized throughout, each woman faces her own unique set of financial
circumstances. The importance of working with a trusted advisor who knows your goals and
objectives cannot be underscored enough.

Many women hesitate to save more than the “maximum” amount the government allows
taxpayers to put aside for retirement. Trusted advisors might very well encourage women to
save more than the maximum. Given lengthening longevity and our increasing desire to have
quality time in retirement, putting aside supplemental savings will almost always benefit
women in the long run.

B. Many women can afford to take more risk

Given the length of time women will need to rely on their savings, women can afford to take
on higher levels of well-chosen risks, notably investing in equities, the principal source of
long-term investment returns. As the chart below indicates, there are several asset classes
that offer higher levels of return per unit of risk for women to consider.

Women should consider allocating some portion of their savings to the asset classes in the
upper right quadrant of the risk/return diagram. By taking more risk and investing in higher
returning assets such as: large cap stocks, international stocks, and real estate, women
have the potential to improve the performance of their investment portfolios, resulting in
higher levels of lifetime income.

Women who are very comfortable with the level of risk they are already taking with their bond
holdings may want to take note that over time guaranteed lifetime income offerings can have
the potential for lower levels of risk coupled with potentially higher levels of return.

C. Higher level of guaranteed lifetime income

Many financial advisors suggest obtaining guaranteed lifetime income to cover essential
expenses in retirement. These principally include; healthcare, housing, clothing, food and
shelter. Just as relying on the average number of years worked can be misleading for women,
relying on the average expenses in retirement does not account for the additional economic
burden women bare in retirement. Women will both live longer and have higher expenses in

Women should consider opting for a higher level of guaranteed income recognizing that their
healthcare expenses are 11% higher and that they are likely to be the sole providers of their
household for over a decade. Whenever possible, women should strive to obtain guaranteed
lifetime income through their company’s retirement plan.

Even though women have longer life expectancies, the Supreme Court held that when
companies offer lifetime income through their retirement plans they must use unisex life
expectancy tables. The net result is that men and women of the same age with the same
savings will receive the same dollar amount each month by opting into a lifetime income plan
offered through their company.

All women, especially those with fewer resources at their disposal, should take advantage
of the unisex actuarial tables available through their companies and protect themselves
from outliving their assets. Women who decide they want lifetime income outside of their
company’s retirement plan will quickly discover that without the benefit of the Supreme Court
decision, they will receive a smaller monthly paycheck. This marks a unique opportunity for
women to experience an economic advantage in the workplace based on gender.

The Gender Retirement Gap in the 21st Century

Today marks a pivotal point in the history of the US retirement industry. Defined contribution
plans now dominate the retirement landscape, making employees responsible for developing
their own savings and spending strategies. Changes in income can make it very difficult
for people to maintain the same standard of living. For women this can be particularly
challenging. However, when armed with the data and tools presented here, women can help
themselves achieve financial security.

Women in the workforce have undergone an evolutionary process, with a revolutionary
impact. They now make tremendous contributions to our global economy, yet continue to face
the Gender Retirement Gap. By implementing the solutions noted above, women can begin to
narrow the Gender Retirement Gap and reduce the risk of outliving their assets.




Any opinions expressed herein are those of Diane Garnick and Kari Pinkernell and do not necessarily represent the views of the TIAA group of
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