In nearly every way, women face an uphill battle in their retirement planning and execution.
From longer life expectancies to lower earnings, lower financial literacy rates to lower remarrying rates, women have their work cut out for them to ensure a comfortable retirement.
But the first step to solving any problem lies in understanding its causes.
Retirement & Investing Challenges Women Face
Bear the following retirement and investing challenges in mind as a woman planning your retirement — and then take steps to mitigate them.
1. Lower Earnings
Women earn less than men do, on average. And the less you earn, the harder it is to save, invest, and build wealth.
Data from Payscale’s 2020 Gender Pay Gap report found that the median American woman earns 19% less than the median man. That gap has narrowed in recent years, slimming from 26% in 2015, but remains a significant disparity.
That earnings differential adds up to an enormous sum over a 40-year career, particularly when you take compounding returns into account. Imagine Samuel earns a roughly average salary of $65,000, while his sister Samantha earns 19% less at $52,650. They both save 10% of their paycheck every month, and they both earn a 10% historical average return by investing in an index fund.
After 40 years, Samuel would have a tidy nest egg of $3,452,222. Samantha, meanwhile, would have a significantly lower $2,796,300. Fully $655,922 lower, to be exact.
When Payscale controlled for factors like years of experience, job title, and other tangible qualifications, the pay gap drops to 2%. But that still means that an equally qualified woman earns 98% of her male counterpart’s paycheck.
2. Longer Life Expectancy
While women earn less income, they live longer lives, which requires them to save more money for retirement. The longer you expect to live in retirement, the less you can withdraw each year from your nest egg.
And women don’t just live a little longer, either. The most recent data from the CDC shows that women live fully five years longer on average, with women’s life expectancy pegged at 81.2 years compared to 76.2 for men.
Five years’ living expenses comes to hundreds of thousands of dollars for the average American — no trivial amount by any standard. If women expect to live longer in retirement, they need more money saved to cover those greater retirement expenses. Hard stop.
Even lifestyle changes that prolong your life expectancy work better for women than for men, adding 14 years for the average woman but only 12 years for the average man.
3. Lower Participation in the Stock Market
By a surprising margin, far fewer women invest in stocks.
Our 2019 survey found that nearly three-quarters (74%) of men reported they invest in stocks, compared to only half (51%) of women. Women also report dramatically lower confidence levels about their investments, and are half as likely to claim that their returns beat the market at large.
Despite that lower confidence however, some research shows that female investors actually score higher returns than men. For instance, a 2018 study by the Warwick Business School found that female investors beat men by a margin of 1.8%.
Of course, in order to beat men on returns, women have to actually participate. Sadly, 41% of older women wish they’d invested more of their money, according to a study by Merrill Lynch.
4. Greater Likelihood of a Career Gap
Roughly half of American mothers pause their careers when they have children, according to a 2020 study by LinkedIn and Censuswide. During that pause, these mothers often don’t earn an income, sapping their ability to save and invest for retirement. Many never reenter the workforce, and those who do endure weaker career prospects due to the lost time and work experience.
While surprisingly little research exists for the long-term cost of a career break, one study in the UK by Adzuna reinforced what you already suspect: that the longer the gap, the greater the career-long impact on earnings. People who took a nine-month break from their career earned an average of £1,449 ($1,934) less per year after returning to work. After a two-year break, the earnings gap widened to £3,864 ($5,158), and after a five-year gap, it ballooned to £9,660 ($12,894).
Neither is it easy to find work again after such a long hiatus. The LinkedIn-Censuswide study found that 61% of moms reported challenges in reentering the workforce.
Between the lost years of income and the subsequent lower earnings, career breaks fuel the gender pay gap that makes it harder for women to save for a prolonged retirement.
5. Greater Likelihood of Caretaker Responsibilities
Women don’t just care for infants and toddlers disproportionately. More often than not, it’s women who also become caregivers for aging parents and even adult children who have failed to launch. In some cases, they get hit with caring for family members at both ends of the age spectrum simultaneously, a phenomenon known as the “sandwich generation.”
These caregiving responsibilities often prevent women from returning to work even after their children reach school age. It further depletes their earning and saving potential.
Even when these women do manage to return to work, they often look for flexible jobs where they can work from home. The flexibility of these jobs can come with a cost, however, as many are 1099 gig economy positions with no retirement or health care benefits. That layers on all the retirement savings challenges gig workers face on top of women’s other challenges.
6. Higher (Relative) Consumer Spending
Many studies of how men and women spend aim to dispel the stereotype that women spend more than men by pointing to higher total dollar spending by men when you include purchases like cars. Even so, women spend a higher percentage of their income on consumer products, and far outspend men on clothes, apparel, accessories, and personal products, on average.
Some women cry foul by pointing to the “pink tax” — the cost of personal care products exclusively for women and higher pricing for products marketed specifically to women. But the simple fact is that companies charge whatever the market will bear, and some women are willing to pay more for female-centric marketing.
You do have some degree of control over this: if you don’t want to pay extra for goods, stop buying into the marketing. If a pack of pink razors costs 30% more than a pack of gender-neutral razors, buy the neutral razors and call it a day.
7. Lower Remarriage Rates After a “Gray Divorce”
When couples over age 50 divorce, known colloquially as a “gray divorce,” men are far more likely than women to remarry. A 2019 study published in the journal Demography found that 37% of men remarry within 10 years of a gray divorce, but only 22% of women do.
This matters because two-adult households have two earners paying the bills, regardless of whether those earnings come from retirement accounts or a job. Two adults can live nearly as cheaply as one adult, sharing everything from housing costs to cars to health insurance plans. Even food costs less when you prepare it at scale — which single people rarely do.
When it comes to retirement planning, two incomes beat one.
8. Lower Social Security Benefits for Widows
When your spouse dies, the Social Security Administration doesn’t keep paying benefits for both of you. As the surviving spouse, you typically qualify to continue collecting benefits for whichever spouse received more, but not both people’s benefits.
For example, suppose you and your husband are 70, and he receives $1,200 per month while you receive $800, for a combined total of $2,000. He passes away, and you apply for survivor benefits. You start receiving his $1,200-per-month benefit, but you lose the $800 monthly check you had been collecting for yourself.
Your mortgage payment and utility bills don’t disappear, but you lose a significant source of income each month when you lose your husband. The same scenario plays out for men who lose a spouse, but again, as the partner who’s statistically likely to live longer, you can expect to need to cover your living expenses with lower benefits and income than you were receiving combined.
9. Higher Likelihood of Elder Abuse
The National Institute on Aging notes that most victims of elder abuse are women. With long lifespans also comes a greater likelihood of becoming dependent on strangers in the last few years of life, which can result in financial exploitation.
But not all perpetrators are strangers. According to one estimate by New Hope for Women, a third of elder abuse cases involve aging parents’ adult children.
All the more reason to build your own financial literacy, and to bring in trustworthy fiduciary help if your cognition declines.
10. Lower Financial Literacy
Women have consistently lagged behind men in financial literacy tests for decades, such as in this 2013 study by the University of South Florida. Recent evidence from the FINRA Investor Education Foundation suggests that the financial literacy gap is narrowing, with the gap among millennial women around half that of baby boomers. One disturbing study by The American College of Financial Services found that 80% of older women failed a basic test on retirement literacy.
Even as the gap narrows among younger women, they still prove risk averse and reluctant to invest. An analysis by SoFi Invest found that men invested 32% more than women — even after adjusting for income. Among those who automated their investments, women contributed 48% less than men.
Failing to invest your savings remains among the worst retirement mistakes you can make. The more you know, the more comfortable you’ll find investing and personal finance, so take on financial literacy as a crucial life skill. You need to understand your own finances to make better informed financial decisions, starting today.
Retirement Tips for Women
So what should you do as a woman to overcome these retirement challenges?
First and foremost, plan to save more money during your working years. Boost your savings rate to accumulate wealth faster, and ideally automate your savings (this can easily be done through apps like Acorns) so it doesn’t depend on your willpower to happen each month.
But money sitting around in savings loses value to inflation each year, rather than earning a return. Put your money to work for you by investing in the stock market, in investment properties, in bonds, and any other retirement investments recommended by a financial advisor. Or just use a robo-advisor for easy hands-off investment management.
Of course, the more you earn, the more you can save and invest. As my grandfather used to say, you don’t get what you deserve, you get what you negotiate, which could explain some of that gender pay gap for equally qualified employees. Get more aggressive as you negotiate your salary and benefits, and if you don’t like your prospects at your current employer, look for someone willing to pay you what you’re worth.
You may also need to work later than you’d originally planned. People who live to age 98 can’t necessarily retire at 60 — longer lives mean longer careers. That doesn’t mean you have to keep working your high-octane job though; consider a post-retirement job to do something more fun, relaxed, or meaningful after parting ways with your stressful day job.
Alternatively, you can pursue financial independence and retire early. Just know that it means a much higher savings rate and a lower withdrawal rate after you retire.
Finally, use tax-sheltered retirement accounts to minimize your tax burden both now and in retirement. That could mean an employer-sponsored retirement plan if available, but should definitely include IRAs. Consider using a Roth IRA to minimize taxes in retirement, because your taxes may well go up in retirement, not down.
If Americans share one long-term financial goal in common, it’s retirement. Everyone ages, and most of us reach a point where we no longer want to — or can — work.
Yet women face unique retirement challenges that add layers of complexity compared to their shorter-lived, higher-earning male counterparts. Start with a simple mindset shift, taking full responsibility for your own financial future even if you’re married to a financial whiz. Put bluntly, your husband may not be around for the last several decades of your life, so you need to take part in your retirement planning.
You’re the one who will have to live with the results, after all.