Women Facing Poverty in Retirement?

by Stacey L. Spencer, QKA | Manager, Employee Benefits Group
317.260.4421

Women often reach retirement age with fewer pension benefits and retirement assets than men. All workers need to save more for retirement, but women face added challenges because they have lower earnings, experience higher job turnover, and have a longer life expectancy. Women generally begin retirement with smaller pensions than their male counterparts but usually live longer than men. Social Security is intended to be a supplemental source of income in retirement, but too many women are forced to rely on it as their sole source support in retirement. As a result of these issues, elderly women in the United States have one of the highest poverty rates of any industrialized nation.

Chief among the reasons that women save less than men is that women earn less than men; lower earnings equal lower retirement savings. The Equal Pay Act was passed in 1963 and yet almost half a century later, women make only 77 cents for every dollar earned by men. According to the National Women’s Law Center, “This persistent pay gap translates to more than $10,000 in lost wages per year for the average female worker.”

Equal pay is not just a women’s issue; it is a family issue. Women make up half of the U.S. workforce and mothers are the primary breadwinners or co-breadwinners in nearly two-thirds of American families. Wage discrimination harms many American families by limiting their economic security now and their retirement security in the future.

In April, the Paycheck Fairness Act was reintroduced in both the House and the Senate. This bill would help eliminate wage discrimination.

Women Have Different Work Patterns

Women have different work patterns. Women generally spend less time in the workforce due to family care-giving responsibilities, from raising children (and grandchildren) to caring for elderly parents. Also, women are more likely to work in part-time jobs that don’t qualify for a retirement plan. Such job interruptions mean less opportunity to save for retirement and to contribute to Social Security. Of the 62 million wage and salaried women (age 21 to 64) working in the United States, just 45 percent participate in a retirement plan.[1]

Married Women Often Rely on Spouse’s Savings

It is not unusual for many married women to rely on their spouse’s retirement savings. Under traditional pension plans, benefits to married workers were paid as a lifetime annuity with benefits for the spouse. However, in the majority of 401(k) plans, spousal consent is not required for a worker requesting a distribution. This means that a worker can take a distribution from the plan without the spouse’s consent (or knowledge). The trend towards 401(k) plans and away from traditional pension plans has contributed to the lack of retirement funds for many women.

Women Invest More Conservatively than Men

Studies indicate that women invest more conservatively than men. Women tend to emphasize safety over return. They often save less for retirement and then sacrifice long term growth with a low risk investment strategy.

Women Need More Money for Retirement

Women have longer life expectancies than men. Life expectancy for women now is approximately five years more than that for men. Consequently, women spend longer in retirement. For married women, 70% of them will outlive their husbands. Unmarried women (including widows) age 65 and older rely on Social Security for 50 percent of their total income. Because women tend to live longer than men, they are in greater danger of outliving their other sources of retirement income.

Startling Statistics

The latest Census Bureau data show a significant and alarming increase in poverty and extreme poverty among women, men and children in the United States in 2009. Poverty among women increased to 13.9 percent, up from 13.0 percent in 2008 — the highest rate in 15 years and the largest single-year increase since 1980. More than 16.4 million women were living in poverty in 2009, the largest number since the Census began collecting this data in 1966.[2]

Changes Needed to Close the Retirement Savings Gender Gap

• Continue to work to eradicate the wage disparities between men and women.
• Increase pension coverage for lower-wage, part-time and temporary workers.
• Provide Social Security earning credits for care-giving.
• Require spousal consent for 401(k) distributions.
• Allow tax-free transfers of retirement assets between spouses.
• Provide investment education specific to the overly cautious investment strategy chosen by many women.

Ultimately, the basic saving strategies are the same for men and women: start saving early, contribute as much as you can to your company retirement plan and don’t take money out of your retirement plan to meet short-term needs. However, it is especially important for women to stay focused on saving for retirement as pay inequity and the work patterns of many women reduce their future retirement income.

“The pay discrimination and injustice that women endure throughout their working lives comes full circle when they get older—and it strikes its cruelest blow at retirement age when women realize that after a lifetime of hard work and struggling, they are left with very little to live on.” – Former Congresswoman Pat Schroeder