Wealth Mindset: Solving the Retirement Gap

22 Jan Wealth Mindset: Solving the Retirement Gap

Posted at 10:02h in DW Life, Executive Woman, New Articles, Wealth Mindset by Cathy Krizik

The disparity in retirement savings between women and men is significant—but it can be bridged

By Melanie Lockert

Angela Green Urbaczewski always knew saving for retirement was important and made it a priority. But her progress got derailed after a divorce. At the time of her separation, her two children were young, and she wanted to give them stability by remaining in the family home. So she ended up spending a third of her retirement savings to buy her ex out of their home. After that, she got back on track and continued to save for retirement. But paying the mortgage by herself while saving for her kids’ education made it difficult.

Flash forward to years later. Urbaczewski had remarried and could catch up on some of the retirement savings she’d lost. After being able to build up again for six years, she learned that her sister had been diagnosed with brain cancer. Urbaczewski committed to helping with caregiving duties. Then a year later, she was laid off from her job. She has since started her own company, RevOppAI, but launching a business on top of managing family matters has meant putting retirement savings on pause again.

Urbaczewski’s story highlights the twists and turns in life that impact women’s retirement savings. Her tale, far from unique, is an example of the types of things women experience when saving for the future, developments that result in major retirement disparities between women and men.

Retirement gap

When you look at women’s retirement savings compared with men’s, the difference is clear. According to the 2023 T. Rowe Price Retirement Savings and Spending Study, women had an average retirement account balance of $154,800, compared with $248,200 for men.

Paychex, a payroll services company, found that women and men have similar participation rates when it comes to saving for retirement, according to the company’s report The Road to Retirement. However, the report illustrates major differences
in portfolio balances despite similar participation rates. The company reviewed portfolio balances across generations, from generation Z to the silent generation, and showed that the average portfolio balance for females is $42,420—less than two-thirds of males’ average portfolio balance of $68,753. The retirement disparities between women and men are greater for older generations, while millennials and generation Z have the smallest gap.

Though there may be progress for younger generations, the gap persists. So what’s behind the retirement disparity between women and men?

The pay disparity

One big factor is that women get paid less than their male counterparts. The 2023 T. Rowe Price Retirement Savings and Spending Study found women had an average annual income of $62,600, while men had an average annual income of $78,200.

Data from the US Department of Labor (DOL) shows similar trends, with women making 84 percent of what men make for full-time work. This gender wage gap occurs across racial and ethnic groups, according to DOL data. Bureau of Labor Statistics data shows Black and Hispanic women have the lowest median weekly earnings. Needless to say, reduced earnings over a lifetime lower how much women can save for the future.

“Women have historically been paid less than men, and the more we go back in history, the worse that it is,” explains Jacqueline Schadeck, a certified financial planner, CEO and founder of Golden Wealth Strategies, and host of My Money Mentors on PBS. “So for women who are retiring now, they’ve had a lot of experience with that wage gap. Unfortunately, their savings are typically not as much as men’s.”

Caregiving

Women tend to take on unpaid caregiving duties for aging parents, a spouse, and children at higher rates, which has short- and long-term consequences for retirement.

“We’re doing most of the work during our childbearing and -raising years and typically that means that our income takes a hit. So when we’re saving for retirement, we’re noticing that we have a lower Social Security income as well, and that’s not helpful,” says Schadeck.

The Department of Labor estimates that unpaid caregiving by mothers reduces earnings by 15 percent, which results in an average of $295,000 in employment-related costs over a lifetime.

Divorce or loss of a spouse

Getting a divorce or losing a spouse can also have a substantial effect on a woman’s retirement. In both cases, it means moving from a two-income household to one, which can be a tough adjustment. In a divorce, splitting assets and paying for legal costs can be expensive.

Older women who are divorced or widowed have higher rates of poverty compared with their married counterparts. And losing a spouse can be devastating in more ways than one if the deceased didn’t have a life insurance policy.

Living longer

Women’s life expectancy is longer than men’s. According to 2022 data from the US Centers for Disease Control, women’s life expectancy at birth is 80.2 years, while men’s is 74.8 years. Those additional years mean women need to save more for retirement. Not preparing for this reality can lead to financial insecurity or poverty.

How to close the gender retirement gap

Though systemic issues are at play with the gender retirement gap, there are some things you can do to take control.

Make retirement contributions a priority

Judith Ward, a certified financial planner and thought leadership director at T. Rowe Price who authored its retirement study, suggests women take advantage of what’s readily available, such as a 401(k) plan with a potential company match.

If you don’t have access to an employer-sponsored plan, don’t let that stop you from saving for retirement. You can look into IRAs: a traditional IRA, Roth IRA, or spousal IRA. That last one helps women who are focusing on childcare or other caregiver duties save for retirement.

“For people who may not be investment savvy, usually there’s a choice-of-target-date solution [in which the person chooses a target retirement date],” Ward says.

Increase income

One way to combat the gender pay gap is to focus on increasing your income. “A lot of people have [already] cut their spending,” says Ward.

She says with the rise of remote work and greater flexibility, you have more options to increase your income. In addition to the usual moves—
getting a higher-paying job or asking for a raise with your current employer—you could also start a side hustle or take on freelance opportunities.

Create a comprehensive plan

Start where you are and create a comprehensive plan for the future. “Know what your income sources are going to be, what your Social Security benefits are going to look like,” says Pamela J. Sams, a chartered retirement planning counselor and financial advisor at Jackson Sams Wealth Strategies.

Consider life expectancy, lifestyle, and location when determining how much you need to save for retirement. “Are you going to relocate? That really has an effect on how much you need to start saving toward retirement,” Sams says.

To protect yourself against the event that your spouse passes away, make sure they have a life insurance policy in place. And above all, continue to learn about finances and consider seeking the advice of a financial professional. EW

Melanie Lockert is the author of Dear Debt, which chronicles her journey out of $81,000 in student loan debt, and has a decade of experience writing about personal finance.