Practical analysis for investment professionals
24 May 2017

The Retirement Gender Gap: Saving, Risk, and Guaranteed Income

“The retirement issue is the single largest issue we will be facing in the 21st century,” Diane Garnick told participants at the 2017 CFA Institute Wealth Management Conference in Nashville, Tennessee. “When people do not save for retirement, they are in big trouble.”

Advisers must be ready to address these concerns.

“The big fear society has is your standard of living is going to drop dramatically [in retirement]. And that’s what clients come to you and ask for help on,” said Garnick, chief income strategist and managing director for TIAA (Teachers Insurance and Annuity Association), and a trustee of CFA Institute Research Foundation.

So what does the retirement data say? One of the most worrisome trends is the gender retirement gap.

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Lauren Foster reported:

“The National Institute on Retirement Security (NIRS) released a report [in 2016] with a startling finding: ‘Across all age groups, women had substantially less income in retirement than men,’ and were 80% more likely to be impoverished during their so-called ‘golden years.’ As they aged, the situation worsened: Women between 75 and 79 were three times as likely to fall into poverty than their male counterparts.”

Garnick confirmed this finding. “If a man saves 10% of his income, a woman needs to save 18% just to have the same level of wealth at the moment of retirement,” she said. “That is a very dramatic difference.”

So where does this disparity come from? And how can it be eliminated?

There are three factors, in particular, that come into play.

1. Fewer Years in the Workforce

Women spend fewer years in the workforce than men, Garnick noted. Why? Because of children. Women leave their jobs or work fewer hours to have and raise their families.

“Amongst all mothers, 29% of them are stay-at-home moms,” Garnick said. Even among professionals, 11% of highly educated mothers decide to stay home, according to her research.

And that pattern has ramifications:

“There’s an opportunity cost of staying home,” said Olivia Mitchell, the director of the pension research council at the Wharton School of the University of Pennsylvania. “Time out of the labor force is a penalty.”

And raising children is not the only cause of the gap in working years. Women are more likely to take a break to handle elder care as well.

These decisions are important because less time in the workforce equates to less time to save for retirement.

Based on data from the US Social Security Administration, Garnick found that men’s working lives span 38 years on average. For women, it’s 29 years. So that means women have about 25% less time to save for retirement than men do.

“When we talk about saving for retirement, we talk about saving a percentage of your pay,” she said. Women often have these gaps when their pay is zero, and these must be accounted for when determining their retirement savings.

“There are all kinds of career decisions that [women] have to make over time,” Garnick said. “In every one of the biggest cases, women make these decisions at a higher pace than men.”

And they pay a higher price.

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2. The Gender Pay Gap

The second headwind women face is the gender pay gap. According to Garnick, a woman earns $0.72 on the dollar compared to a man. Data from the National Partnership for Women & Families say it’s $0.80, while statistics from Madeline Farber put the figure at $0.82.

The National Partnership for Women & Families tallied up the annual cost of the gender pay gap in the United States. It comes out to more than $840 billion every year.

That means women and their families have less money to spend, to support themselves, and to invest for the future.

“So first we have fewer hours in the workforce,” Garnick said, “and then when women do work, they don’t make as much money.”

3. More Risk Averse?

The third hurdle, Garnick noted, is that women tend to be more risk averse compared to men.

Now, this is a statement that is not without controversy. According to Barbara Stewart, CFA, researcher and author of the Rich Thinking series on women and finance, “women are risk aware, not risk averse.”

Either characterization makes logical sense though. If a woman has less money saved for retirement, how likely is she to take a risk with it? She needs that money to see her through her remaining years. “The level of risk aversion is really significant,” Garnick said.  “In fact, women hold about 5% more cash [than men]. Women really need to make sure that they’re not suffering through cash drag.”

So, when you combine all three factors — women work about 75% of the years a man does, make about 75% of the pay, and are more risk averse — they must save at least 18% of their income to maintain the same level of wealth in retirement as a man saving 10%.

And women tend to live longer than men do. Men live until age 77  on average and women until age 79, according to the US Census Bureau.

But this is not the data point to focus on, Garnick said, because it fails to capture what she called “longevity risk.” The Census numbers represent longevity from birth, but people who make it to retirement age, say 65, will probably survive well beyond that. A woman who reaches 65 is likely to make 85. Longevity from birth is not the concern, rather it is longevity from the age of 65 on.

“We really have the graying of America,” Garnick warned, “this gray tsunami that’s coming to us right now.”

Because if a client focused solely on saving until the age of 79 yet lives well beyond that, how quickly will she run out of her money?

Secure Retirement graphic

With longer life expectancy comes higher health-care expenses. A woman spends around $361,000 on health care over her lifetime compared to $268,000 for a man, Garnick said. In effect, women must spend about 18% more on health care. Their hospital stays tend to be longer and the more costly conditions tend to happen later in life.

So what’s a woman to do? And how can advisers help?

Garnick offered three solutions:

  • Women should save more.
  • Women should be less afraid of risk.
  • Women should have a higher level of guaranteed lifetime income.

“Investing early and often is critically important, particularly for women who are going to stay home or take work breaks,” Garnick said. In addition, a customized portfolio for a client’s specific needs — one that encourages women to take on higher levels of risk — can make a significant difference in their standard of living throughout the remainder of their lives.

And finally, what are the things your client cannot or will not live without? “For at least that component of their financial wealth, you need to consider converting them into guaranteed lifetime income,” Garnick said.

Above all, advisers need to be explicit with their clients.

“Conveying the amount of monthly income from the very beginning gives clients the right framework to think about how much money they should be saving and whether or not they’re on track to meet their goals,” Garnick said. “Customization is key. The more your population varies from the average American household, the more valuable customized solutions should be.”

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©Getty Images/jozefmicic


Key Takeaways

  1. Fewer years of participation in the workforce, lower median salaries, and heightened risk aversion can all contribute to lower amounts of retirement savings for women. Additionally, women face higher health-care costs in retirement.
  2. If a man saves 10% of his income, a woman needs to save 18% just to have the same level of wealth at the moment of retirement. Women between 75 and 79 are three times as likely to fall into poverty than their male counterparts.
  3. Diane Garnick recommends that advisers who work with women should help their clients save more, be less afraid of risk, and have a higher level of guaranteed lifetime income.


Diane Garnick

View the full transcript (PDF).

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About the Author(s)
Susan Hoover, JD

Susan Hoover was the editor of Connexions, the CFA Society Leader newsletter, and the digital editor of Enterprising Investor at CFA Institute. Prior to CFA Institute, Hoover worked for McCallum & Kudravetz, PC, and the US Department of the Navy in real estate and labor law. Hoover earned the CFA Institute Investment Foundations™ Certificate and holds a BA degree from Lehigh University and a JD degree from the Washington College of Law, American University.

2 thoughts on “The Retirement Gender Gap: Saving, Risk, and Guaranteed Income”

  1. Diana says:

    The gender gap in retirement savings is a real phenomenon and it may threaten the long-term financial stability of women. Women tend to be more conservative in their investments. While conservative investing can keep money safe, it may also mean women don’t earn high enough returns to build a comfortable nest egg. Women should certainly save more aggressively. It will also help them a great deal if they are in charge of their own retirement plans.

  2. Gemini says:

    According to Piketty income inequality declined in the middle of the twentieth century because of dual income families. The institution or custom of Marriage resulted in strengthening households. Reliance on investments in individual assets is always risky. Stay married and have a two asset labor income portfolio. Save and postpone gratification. Convert labor income into capital via savings and enjoy later in life.

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