Giving Compass' Take:

• Grace Enda and William G. Gale explain the factors that create inequitable retirement savings that disadvantage women. 

• What role can you play in system change to. address the inequalities that lead to problems in retirement? 

• Learn about what the COVID-19 pandemic will mean for retirement.

In the 100 years since the ratification of the 19th Amendment, women have made substantial and well-publicized gains—both in absolute terms and relative to men—in educational attainment, employment, and earnings. Their status in retirement, however, has received far less attention.

Variations across individuals or groups in economic status in retirement can be traced to differences in labor market earnings, retirement saving derived from those earnings, and other factors including marital status, life expectancy, risk aversion, and financial acumen.
These factors help explain women’s resources in retirement. For a variety of reasons, women earn less on average over the course of a lifetime than men do. Lower lifetime earnings make it harder for women to save for retirement. Exacerbating these differences, women are on average longer lived, more risk averse, less financially literate, and more likely to have greater caregiving responsibilities than men.

Public policies that aim to boost women’s status in retirement should focus on the ways women participate in the labor market and in wealth accumulation programs as well as on specific retirement programs and benefits.

Earnings

For several interrelated 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.

Even within occupations, however, women receive unequal pay for similar work. Among full-time, year-round workers in 2018, median women’s earnings equaled 81.1 percent of median men’s earnings. Controlling for age, education, job tenure, occupation, job title, location, and industry, the figure rises to 94.6 percent.

From earnings to retirement wealth

Lower lifetime earnings lead to lower retirement wealth. The most important link is through Social Security, which provides over half of family income to 52 percent of the elderly and at least 90 percent of income to 25 percent of the elderly. Women receive Social Security benefits that are, on average, 80 percent 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 the wage gaps noted above further reduce women’s benefits. The motherhood penalty applies here, too: having a first child reduces a woman’s Social Security benefits (through reduced earnings) by an average of 16 percent. Each additional child increases the gap by 2 percent. 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. Spouses (or ex-spouses, if the marriage lasted more than 10 years) 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.

Lower lifetime earnings also reduce the amount of wealth women can accumulate from employer-sponsored retirement plans, which come in two forms—defined benefit (DB) and defined contribution (DC) plans.

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 thus often have to draw down their retirement wealth over a longer period of time. In 2020, average life expectancy at age 65 is 21.1 years for women and 18.6 years for men.

Fixing a retirement system that was not designed to accommodate women’s experiences will require significant changes, not just in retirement policy but in labor market practices and policies as well.

Read the full article about gender inequity and retirement by Grace Enda and William G. Gale at Brookings.