tiaa income insights

Women And The Gender Retirement Gap

Our retirement systems claim to be gender-neutral, but significant barriers still remain

Excerpts from the TIAA-CREF October 2016 study ‘Gender Retirement Gap’, by Managing Director and Chief Income Strategist Diane Garnick. Reprinted with permission. Read more at

November 21, 2016 — The Gender Retirement Gap is not only vast, it is long lasting. 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.

  1. Women work fewer years over the course of their lives.
  2. When they do work, women earn less compensation than men.
  3. 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 workforce.

As the table below highlights, 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

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%.

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 differently. 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

  1. Women live longer.
  2. Women spend more money on healthcare.


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.

Read the complete report here.