Retirement Planning: Why the Stakes Are Higher for Women

Women have come a long way since the push for women’s equality began in earnest in the 1960s. Today, more women are pushing through the proverbial glass ceiling, taking on new jobs and new positions in business that many would not have believed possible only a few decades ago. Though the advancement of women in society and the workplace has improved women’s circumstances across many areas of their lives, there is still significant progress to be made. One often overlooked example of an area ripe for improvement is women’s status in retirement.

While men and women share similar outlooks when it comes to the basic costs and timing of retirement, women face a number of personal and professional challenges that make it more difficult for them to achieve retirement security in their futures. Despite gains in education, employment, and earnings over the past few decades, women still lag far behind their male counterparts when it comes to retirement savings.

Research from the Transamerica Center for Retirement shows that women's median total household retirement savings are a third of what men have. Moreover, men are twice as likely as women to have accumulated $250k or more in retirement savings.1  There are a variety of reasons for this discrepancy, but the net result is that women are achieving vastly different outcomes than men when it comes to securing their financial wellness in retirement.

With women making up 47% of the U.S. workforce, and earning more college and advanced degrees than men, it’s important for employers to understand that retirement outcomes are not gender neutral. Companies can benefit their employees and long-term bottom line greatly when they engage more fully in helping all of their employees prepare for retirement.

First, the Discrepancy Is In the Numbers.

Women continue to face a wage gap.

Women earn on average 81 cents per dollar earned by men.2 Even when an equally qualified man and woman get the same job, women are paid 92 cents for every dollar men earn.3 Lower lifetime earnings mean women have less to put away in savings, which reduces the amount of wealth they can accumulate from employer sponsored retirement programs. Studies also show that among those who worked full-time and had access to a plan, women contributed a median 7% of salaries, compared with 10% for men.4

Women experience more career interruptions.

Women are more likely than men to be the primary family caregiver and take unpaid time off to care for their own children or relatives. This leads them to leave the workforce, pause their careers, or seek more flexible, part-time jobs that often don’t offer employee retirement savings plans: 30% of women are not offered any retirement benefits at work, compared to 21% of men.5 As a result, women have less time and opportunities to save, missing out on years of contributions and the benefits of compounding interest that come with saving early and often.

Women have a higher stake in how long their retirement income will last.

In 2020, the average life expectancy at age 65 is 21.1 years for women, compared with 18.6 years for men.6 In health costs alone, women can expect to pay more: $147,000 compared to $133,000 for men.7  Moreover, women are more likely to survive their partners and lose their ability to share expenses. This means that women often need larger nest eggs to achieve the same level of annual income throughout their entire retirement to cover the costs of a longer lifespan.

Second, the Challenges are Attitudinal.

Differences in attitude, values, and perception also contribute to the gender gap in retirement and financial planning.

When it comes to money and finances, women report being less self-assured.

Though women are similar to men in their goals for retirement, they are less certain about their ability to meet those goals: 45% of women aren't confident they will be able to retire comfortably, compared with 29% of men.8 This lack of confidence may be explained partly by a lack of financial education, societal gender expectations, or simply their own perception of their investment competence: just 15% of women say that they are very knowledgeable about managing their savings and investments.9

Women are also more likely to be risk averse.

According to one study, women overall invest 40% less than men,10 while another study revealed that 85% of women say they don’t own stocks at all.11 Lower lifetime earnings means women have less money to work with than men, and caregiving duties often take priority, reasons that explain why investing often ends in the backseat. While women’s reservations about risk are well-intended, a more risk-averse approach to investing can reduce the returns women earn on their savings.

How Can Employers Help?

Demonstrating an understanding of women’s unique challenges is key to not only helping deliver better outcomes for female employees, but also improving the recruitment and retention of women within an organization. In order to maximize the value of your retirement plan for female employees, and offer meaningful steps toward improving women’s overall financial wellness, here are some things to consider:

Optimize plan design.

Plan design is one of the most important levers businesses can pull to improve women’s retirement savings. For some women, it’s simply an issue of getting started. For others, it’s about saving consistently and at an adequate rate. Things like auto-enrollment, auto-escalation, and catch-up contributions can help increase participation rates and improve savings outcomes over time. For example, auto-enrollment removes the legwork needed to enroll in a plan, making plan participation easy and convenient. Auto-escalation automatically bumps up women’s savings rates annually, helping women contribute more money to their plans without lifting a finger, while catch-up contributions allow women 50 and older to “catch up” on contributions they might have missed out on earlier in their career (due to leaving the workforce during motherhood, for example).

Offer retirement messages aimed specifically at women.

Men and women don’t just think about retirement differently, they also talk about it differently. It’s important to have targeted financial education that includes information specific to the needs, concerns, and circumstances of women, like how to navigate retirement planning in the event of motherhood, or sharing data about women’s longer life expectancies. This not only helps them feel recognized and valued in the workplace, but also better equips them to build the financial security they want and need for their futures.

Leverage the right tools.

Financial wellness tools can increase female participation, engagement, and retention by providing insight into their unique longevity risk, modeling their financial potential, maximizing their benefit dollars, monitoring their progress, and helping them plan their finances more strategically.  The use of these holistic and digital tools can help women understand their stakes in retirement, and bring their future finances into a more meaningful and tangible context.

When Employees Thrive, Companies Benefit

Boosting women’s retirement readiness can be an influential driver in attracting, engaging, and retaining more female talent. As women continue to make great strides in their personal and professional lives, it’s important to ensure they do so in retirement as well. A Morgan Stanley Financial Advisor can help you understand the options available to your organization and assist you in better addressing women’s financial planning issues so that retirement planning can be successful for all.

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