Americans are historically concerned that they will not have saved enough money to provide for a reasonable standard of living in retirement. When older people were asked in a benchmark survey which they feared most – death or outliving their money in retirement – nearly two-thirds chose running out of money. [i] In a January 2020 survey, only about seven in ten workers were confident they would have enough to live comfortably in retirement, including 27 percent who were very confident in their ability to retire comfortably. [ii] This survey was taken before the economic impacts of the coronavirus pandemic, as were the data reflected in this report. It could take years before the full impacts of this COVID recession are fully understood, but the massive job losses and economic upheaval experienced by American workers will inevitably have a negative impact on their ability to retire with economic security.
Actual savings rates confirm Americans’ insecurity even before the economy collapsed in March 2020. For American families who have savings accounts, the median savings account balance in the most recent Survey of Consumer Finances by the Federal Reserve was $4,500, with the median value of any financial assets owned totaling $23,500. For those with retirement accounts, the median account balance totaled about $60,000.[iii] When the impacts of the economic recession are calculated, these numbers will inevitably be reduced.
Few companies today offer their workers traditional pensions. This leaves most Americans relying on Social Security along with any personal savings they manage to accumulate for their retirement. This can be especially difficult for widows who may lose the spousal protections inherent in traditional pensions and must rely more on their own resources to fund their retirements. Stagnant wage growth over the past decades has made it very difficult for most American workers to put aside savings for retirement. Instead many have been forced to dip into what retirement savings they have accumulated to cover daily expenses. It is good news that we are living longer than our parents and grandparents. Unfortunately, our longer life expectancy means we need to save more during our earning years so we don’t outlive our nest eggs after retirement. Our longer lifetimes also lead to significant increases in out-of-pocket medical costs, even with benefits provided by Medicare and Medicaid.
These trends inordinately impact women. They tend to spend more time out of the workforce as a consequence of their caregiving responsibilities. Women earn less than men even when doing the same jobs and they more often work part-time or in jobs that do not offer retirement savings plans. As a result, women tend to accumulate fewer savings for retirement. At the same time, their longer average lifespan means that they will have higher retirement costs, both for everyday expenses and for necessary medical care. Consequently, poverty rates for women increase noticeably after reaching age 80 compared with men. [iv]
Factors Driving the Gender Gap in Retirement Savings
Throughout history, working women have earned less than men at every level of education and across occupational categories. Although the gap has narrowed over time, according to the U.S. Census Bureau the median earnings of year-round, full-time female workers in 2018 were about 83 percent of those of their male counterparts: $50,982 compared with $61,417 respectively. [v] A 20-year-old woman just starting full-time, year-round work today stands to lose $407,760 over a 40-year career compared to her male counterpart. When her male counterpart retires at age 60 after 40 years of work, she would have to work nine more years – until age 69, which is past Social Security’s full retirement age – in order to close this lifetime wage gap.[vi] Since a large majority of older women today worked a significant portion of their careers when the pay gap was more pronounced, the cumulative impact during their working years has significantly impacted their ability to save for retirement.
Higher-wage workers are more likely to save because they have more income available for savings. In addition, companies with higher-wage employees are more likely to offer retirement savings plans, and the benefits workers earn are likely to be higher at better-paying jobs.[vii] Traditional defined benefit plans are based on salary levels and years of service, allowing higher-paid workers to accrue higher benefit amounts. In defined contribution plans (such as 401(k) plans), the more income a worker earns, the more is available to invest. Because of this, a disparity in earnings inevitably leads to a disparity in retirement savings, regardless of the type of retirement plan provided.
Part-time workers (those working fewer than 35 hours per week) remain much less likely to participate in an employer sponsored retirement plan. Only one-third of employers nationwide offer retirement plans to their part-time workers and participation in those plans averaged 18 percent in 2016.[viii] Even when they are able to participate in a retirement plan, workers in part-time jobs earn less per hour than workers in full-time jobs and therefore accumulate less in retirement assets.
Women are almost twice as likely as men to work part-time, either for their entire work lives or for a part of their careers. In 2019, about 23 percent of women in the labor force aged 16 and older worked part-time compared to only 12 percent of men. Looking at it another way, women represented almost two-thirds of the part-time workforce.[ix] In addition, employed women generally work fewer hours per week than men. On average, women worked 36.4 hours per week in 2018, compared with 41.1 hours for men.[x] While part-time work may make it easier for women to participate in the labor force, its lower wages and lack of access to retirement plans results in lower asset accumulation over a career.
FEWER YEARS IN THE WORK FORCE
Another key to retirement asset accumulation is the number of years in the workforce and tenure at each job. Because retirement income depends on benefits that accrue throughout one’s working life, more years in the workforce translates to more pension income. This is true of both traditional defined benefit (DB) pensions and defined contribution (DC) plans. An additional factor for defined benefit plans is the length of employment with the same company or within the same industry. All defined benefit plans require a specified number of years of service (typically at least five years) before a worker begins to earn benefits (vesting requirements). Employees with longer service can earn significant benefits, but those who leave the employer before the end of the vesting period earn nothing. Although defined contribution plans do not require lengthy employment before benefits vest, they have other shortcomings that can disadvantage women.
The combination of women’s work patterns and retirement plan designs negatively affect women. A survey released jointly in May 2020 by the National Alliance for Caregiving and AARP titled “Caregiving in the U.S.” presents a stark portrait of unpaid family caregivers of adults today. According to the survey, three in five caregivers (61 percent) are women. On average, caregivers spend about 24 hours per week providing care, with a median of 10 hours.[xi]
The financial strain they experience can have substantial economic consequences. According to those surveyed, four in ten (45 percent) have experienced at least one financial impact as a result of their caregiving. Most commonly, three in ten (28 percent) have stopped saving and one in four (23 percent) have taken on more debt. Both factors can have severe long-term implications on the financial stability of the caregivers, especially if the caregiving situation lasts a long time. Twenty-nine percent of caregivers of adults report providing care for five years or longer.
As a result, caregivers’ savings are eroding. Twenty-two percent report they used up personal short-term savings and 12 percent tapped into long-term savings which were intended for retirement or education. Sixty-one percent of caregivers were employed at some point in the previous year while also caregiving. Men are more often employed while caregiving (67 percent vs. 58 percent) and, on average, they work more hours per week (38.7) than do women caregivers who are employed (33.5). Men who provide care are also more often working in salaried jobs (45 percent vs. 34 percent women caregivers) and are thus more likely to have employer-based retirement savings plans available.
Sixty-one percent of working caregivers have experienced at least one work-related impact such as taking time off for caregiving. Seven in ten report turning down a promotion due to caregiving, and one in ten working caregivers have had to give up work entirely or retire early.
According to the Committee on Family Caregiving for Older Adults, the lost wages, pensions and Social Security benefits a woman who leaves her job due to caregiving loses over her lifetime totals more than $300,000.[xii] In terms of saving for retirement, women caregivers can find it much more difficult to save than men. For example, according to a study on retirement wealth from 2010 to 2016 by the National Institute on Retirement Security, women older than 50 years who are living with a healthy spouse had a median retirement savings balance of $104,547. This compares to $60,835 for women who live with a spouse who is sick or disabled. Comparable differences exist when female caregivers are responsible for taking care of children or aged parents. [xiii]
One example of the cumulative impact of the economic effects of caregiving is that single females caring for their elderly parents are 2.5 times more likely than non-caregivers to live in poverty in old age.[xiv]
LONGER LIFE EXPECTANCY
According to the 2021 Annual Report of the Board of Trustees of the Old-Age, Survivors, and Disability Insurance Trust Funds, women reaching age 65 in 2019 can expect to live 2.6 years longer than men, meaning that their retirement savings must be stretched over a longer period. [xv] This extra life-span also results in additional medical costs. The Employee Benefit Research Institute estimates that in 2019, a 65-year-old man would need $79,000 in savings and a 65-year-old woman would need $104,000 if each had a goal of having a 50 percent chance of having enough savings to cover health care expenses in retirement. This represents a 24 percent gap for women. If they wanted a 90 percent chance of having enough savings, the man would need $144,000 and the woman $163,000.[xvi]
The combination of longer life expectancy and fewer resources in retirement leaves older women more likely to be poor than men, and more likely to outlive their spouses. In 2014 two thirds of nursing home residents were women,[xvii] and in 2015, 62 percent of all nursing home residents were poor enough to qualify for Medicaid.[xviii] According to the National Institute for Retirement Security, poverty rates remain nearly the same between men and women until reaching age 80+, when poverty rates for women increase noticeably, totaling about one-third higher than those of elderly men. [xix]
IMPLICATIONS FOR WOMEN OF A CHANGING PENSION SYSTEM
There are generally two types of retirement plans offered through employers: traditional defined benefit (DB) pension plans and defined contribution (DC) plans such as 401(k) plans. Defined benefit plans are funded by employers and benefits are based on some combination of a worker’s wages and years of service. Defined contribution plans are retirement savings plans. They are typically funded by the worker’s contributions, though some employers provide a matching contribution for some portion of the worker’s savings.
There is a well-established and consistent trend away from defined benefit plans to defined contribution plans. According to an analysis of Fortune 500 companies by Willis Towers Watson, in 1998, 59 percent of these employers offered a Defined Benefit plan to newly hired salaried workers. By 2019, only 14 percent offered any Defined Benefit plan — traditional or hybrid — to new hires. Traditional final average pay Defined Benefit plans have fared the worst. The number of Fortune 500 companies sponsoring an open traditional Defined Benefit plan fell from 49 percent in 1998 to three percent in 2019.[xx] Smaller firms are even less likely to offer such plans due to their cost and complexity.
As a result, according to the Social Security Administration only 45 percent of unmarried women aged 65 or older were receiving their own private pensions (either as a retired worker or survivor). [xxi] A March 2017 study by the Transamerica Center for Retirement Studies found only ten percent of current women workers are “very confident” in their ability to retire with a comfortable lifestyle, compared to 19 percent of men. Almost one-half (47 percent) expect to self-fund their retirement primarily through defined contribution plans and Individual Retirement Accounts (IRAs).[xxii]
Relying on retirement savings plans such as 401(k) plans or IRAs can place women at a considerable disadvantage. According to an analysis of the five million participants in Vanguard’s defined contribution plans in 2018, 60 percent of their participants were male, with median account balances of $27,030 compared with $17,620 for women. [xxiii] As for Individual Account Arrangements (IRAs), in 2018 the total amount of men’s contributions was 31 percent higher than women’s, according to the Internal Revenue Service. Over time, this disparity in contribution amounts resulted in an end-of-year fair market value in 2018 of IRAs held by men that was 51 percent higher than the value held by women. [xxiv] The average woman would need to save $1.25 for every $1 a man invests in retirement savings to build an equivalent nest egg, according to a NerdWallet data analysis in 2017.[xxv]
Traditional pension plans are also especially valuable for married women because they are required by law to offer spousal survivor benefits that can only be waived by consent of both partners, unlike defined contribution plans. One can argue that if spousal consent was extended to these plans as it currently applies to traditional pension plans, those choosing annuity payments over lump sums would increase dramatically to the advantage of widowed women.
The shift to defined contribution plans poses risks for both men and women. In a traditional defined-benefit plan, benefits are based on a worker’s employment history, not on the state of the economy or the ups and downs of Wall Street – all the investment risk is borne by employers. In addition, distributions from defined benefit plans typically take the form of gender-neutral lifetime annuities, which provide retirees a monthly check for life. In contrast, 401(k) plan balances are dependent on the assets’ investment performance and benefits typically take the form of lump sum payments, which can result in retirees outliving their savings. In addition, because defined contribution plans are not collectively invested or professionally managed, they tend to have high fees, making them almost twice as costly as traditional plans. [xxvi]
Since women tend to live longer than men, their 401(k) balances must provide an income stream over a longer stretch of time. Unfortunately, a recent survey indicates only about 12 percent of 401(k) plans even offered an annuity option.[xxvii] Few analysts expect that number to increase in the near term.[xxviii] Women who do desire longevity insurance in the form of an annuity face the disadvantage of having to purchase products priced using gender-distinct mortality tables, which provide lower incomes to women in light of their longer life expectancy. For example, in April 2019 a 65-year-old woman purchasing a $100,000 annuity could expect to receive $532 a month compared with a similarly situated man, who would receive $556 monthly.[xxix]
Despite their many advantages, there are also disadvantages to traditional defined benefit pensions. For example, it can take many years for participants in traditional pension plans to be eligible to earn benefits (vesting). This is a disadvantage for women given their more intermittent career patterns. Defined contribution plans, on the other hand, are portable, allowing women who change jobs frequently or temporarily drop out of the workforce the ability to easily transfer their savings to a new employer.
However, as these plans were originally designed as supplements to traditional defined benefit pensions, they are unlikely to provide significant resources in retirement. Nearly one-half of all working-age families have nothing saved in retirement accounts.[xxx] Even those families with retirement savings are not saving adequately. According to the Federal Reserve Bulletin, the median value of retirement accounts for families with savings in 2016 was $60,000, while average account balances for IRA and Defined Contribution plans combined totaled $270,600.[xxxi] Much of this wealth is concentrated among higher-income families where average account balances reached $641,400 in 2016. [xxxii] Even families approaching retirement age have insufficient savings, with Vanguard reporting in 2019 a median 401(k) account balance for its participants age 45-54 of $40,243 and those age 55-64 of $61,739.[xxxiii]
RETIREMENT INCOME GAP
The cumulative impact of all of the above factors for women is clear. Although Social Security is not designed and was never intended to be the primary source of retirement income for men or women, the shortcomings in the private pension system and unpredictable stock market volatility have left Social Security as the bedrock retirement plan for American workers, especially for women.
The median total income (including Social Security, retirement savings, earnings etc.) of unmarried men aged 65 and older in 2016 was $57,144 compared with $47,244 for women.[xxxiv] The average Social Security retirement benefit in 2020 was $16,536 for women, compared with $20,568 for men.[xxxv] In 2014, Social Security comprised 47 percent of the total income of unmarried women, including widows.[xxxvi] In contrast, Social Security benefits comprised only 34 percent of unmarried elderly men’s income and 29 percent of elderly couples’ income. [xxxvii] In 2014, 47 percent of elderly unmarried women relied on Social Security for 90 percent or more of their total income.[xxxviii]
As a result of their meager retirement savings, many older women must continue to work well past retirement age, but in doing so they remain at a considerable disadvantage to men. According to the Bureau of Labor Statistics, during the second quarter of 2021 the median weekly earnings of women over age 65 were 72 percent of men’s, at $816 compared with $1,141. [xxxix]
Despite gains over the past two decades, a gender gap in pension plan participation and coverage remains. Gender differences in pension wealth arise because men and women have different personal and job characteristics. Women spend fewer years in the workforce, are more likely to work in part-time employment, earn less than their male counterparts, and have longer life expectancies. They generally have accumulated fewer assets and face higher retirement costs when compared with men. Women closer to retirement age have a larger portion of their work careers spent in a period when the pay gap was wider, and they were subject to other gender factors such as time out of the workforce to help raise young children. The result is significantly lower savings for women in retirement. Near-term changes to current pension law can narrow this gap considerably, helping women adequately save for their retirement years. And in the long-term, eliminating the wage gap that limits women’s earnings is essential to helping our daughters and granddaughters save for their own retirement.
POLICY INITIATIVES TO ADDRESS GENDER RETIREMENT INCOME ISSUES
What can be done to reduce the gender gap in pensions? Public policies and the extension of economic trends that promote pay equity between genders would relieve much of the fundamental income disparity that impedes women’s ability to accumulate adequate retirement savings. While some progress is being made in this area it remains a long-term goal. Increased educational achievement by women will also help.
Over the long term, women would benefit from the restoration of the traditional “three legged-stool” of retirement: a robust Social Security program, a reformed employer-based retirement system that borrows the best from traditional pensions, and a strengthened defined contribution system with adequate protections for women. Providing financial incentives to employers to offer at least some elements of traditional Defined Benefit plans to employees could facilitate expanded coverage for all workers. Broader reforms to the employer-based system should encourage plans that are universal, secure and adequate. They should provide for professional asset management and collective investment; and result in investment risk that is not borne entirely by workers.[xl]
In the meantime, there a number of more targeted, near-term steps that can help address the gender gap in pensions.
To address women’s work history, federal law has been changed to encourage the extension of pension coverage to part-time work. Under prior law, employers could generally exclude part-time employees who work less than 1,000 hours per year from coverage under a defined contribution plan, disproportionately penalizing women who are far more likely than men to work part time, either for their entire work lives or for a part of their careers. Enactment of the SECURE Act in 2019 included an important change designed to benefit long-term part-time workers. For plan years beginning after December 31, 2020, employers offering 401(k) plans must permit workers over ages 21 who have worked at least 500 hours in 3 consecutive 12-month periods to contribute to their plans. This change does not take effect until January 2024, but we expect it will have a positive impact on women’s retirement security. Related changes that would also help would be to allow workers who take time off under the Family and Medical Leave Act to count that time toward meeting vesting and service requirements would better suit caregiving needs, as would allowing workers to purchase benefit accruals lost during the time away from employment.
To make saving more affordable, the existing Saver’s Credit providing tax credits for low income workers saving for retirement should be increased. The current Saver’s Credit is not “refundable”, that is, it is not available for workers without a federal income tax liability, and it begins to phase-out at incomes as low as $19,500 per year.[xli] These limits can reduce the Saver’s Credit’s effectiveness in encouraging lower-wage women to save for their retirement.
Because of historically lower labor force participation rates and lower pension participation rates, women are more likely to receive pension income through their husbands, either as spouses or survivors, than through their own savings or employment. In addition, women’s longer life expectancy leaves them more reliant on survivor benefits. Therefore, expanding the options available under the survivor protections of certain retirement plans to allow larger payments for widows and widowers would likely benefit women.
Although some steps have been taken to encourage gender-neutral annuity options, further work must be done to provide incentives for employers to include these annuities in their plans. In addition, including requirements for spousal consent in defined contribution plans similar to those that are required for traditional pension plans would be of considerable benefit to women.
Congress should require straightforward disclosure of all fees paid by 401(k) plan participants and make improvements to the division of pension payments upon divorce and to the annuity rules for survivor benefits in civil service plans.
Finally, a number of states are in the process of considering using their own employees’ pension systems to administer retirement savings plans for private-sector workers who do not have access to retirement plans through the workplace. These plans are designed to provide simple, low-cost investment options to workers, with retirement savings pooled and professionally managed. Most participants are expected to work for small businesses, which disproportionately employ women, and often do not offer retirement plans to their workers. Although a uniform, national plan would be better for workers, having access to employer plans on a state-by-state basis is a good first step toward expanding retirement savings among women. A number of states have adopted such plans or are in the process of considering them. [xlii]
Within Social Security, a number of steps can be taken to strengthen the program to protect women. These include improving survivor benefits, providing credits for caregivers, enhancing the formula used to calculate the special minimum benefit amount, equalizing treatment of disabled and working widows, and restoring student benefits. [xliii] Finally, providing a bump-up in benefits at age 85 would help older women better keep up with increases in the cost of living.
Government Relations and Policy
[viii] Ibid. Figures 3A & 3B.
[xii] Schulz R, and Eden J, Editors, “Economic Impact of Family Caregiving,” National Academy of Sciences Committee on Family Caregiving for Older Center for Biotechnology Information, U.S. National Library of Medicine, Committee on Family Caregiving for Older Adults; Board on Health Care, Services, Health and Medicine Division; National Academies of Sciences, Engineering and Medicine; November 8, 2016.
[xiii] Bond, p. 19.
[xv] Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, “2021 Annual Report,” Table V.A4 – Period Life Expectancy.
[xvi] Paul Fronstin and Jack VanDerhei. “Savings Medicare Beneficiaries Need for Health Expenses in 2019: Some Couples Could Need as Much as $363, 000,” EBRI Issue Brief, no. 481 (Employee Benefit Research Institute, May 16, 2019). h.
[xvii] Department of Health and Human Services, Centers for Medicare and Medicaid Services, “Nursing Home Data Compendium 2015,” Table 3.11.d. Percentage of Nursing Home Residents by Sex and Age Group: United States 2014.
[xix] Bond, p. 8.
[xxvi] W. Forina and Nari Rhee, “Still A Better Bang for the Buck: An Update on The Economic Efficiencies of Defined Benefit Pension Plans,” National Institute for Retirement Security, Washington, DC, December 2014.
Economic Policy Institute: Retirement Inequality Chartbook, p. 11. March 3, 2016.
[xxxii] Ibid, p. 23.
[xxxiii] Vanguard, p.33.
[xxxiv] Bond, Figure 1: “The composition of median household income for men and women, age 65 and over in 2016.”, p. 3
[xl] Statement of Retirement USA, “Retirement Security: Challenges Confronting Pension Plan Sponsors, Workers and Retirees”, Hearings of the House Subcommittee on Health, Employment, Labor and Pensions, June 14, 2011, .
[xlii] Georgetown University Center for Retirement Initiatives, McCourt School of Public Policy, State Initiatives 2020: New Programs Begin Implementation While Others Consider Action.
[xliii] Carroll Estes, Terry O’Neill and Heidi Hartmann, “Breaking the Social Security Glass Ceiling: A Proposal to Modernize Women’s Benefits”, Institute for Women’s Policy Research, National Committee to Preserve Social Security and Medicare Foundation, National Organization for Women Foundation, May 2012, .
Government Relations and Policy