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5 reasons women face roadblocks to retirement and need to save more

5 reasons women face roadblocks to retirement and need to save more

Melanie Lockert

Saving for retirement is crucial, but systemic inequalities make doing so more difficult for women.
Women generally live longer than men, take on more unpaid labor, and end up earning less than men.
The compound effect of earning less and caregiving affects what women can contribute to retirement.

Saving for retirement is an important part of preparing for the future. While everyone should have retirement savings and build a nest egg, women in particular need to have more. However, women typically have less saved for retirement and face unique financial challenges affecting their ability to save and invest for the future.

Why women need more for retirement

Retirement is all about planning for your golden years — and because women tend to live longer than men, they generally need to save more.

"Women have a longer life expectancy, which means there are more years in which they need to draw income from their retirement savings. They are at a greater risk of running out of money by the end of their lives," Rachael Burns, a certified finance professional at True Worth Financial Planning, said.

Women's earning capacity is affected by a number of systemic issues, including the gender pay gap and the pink tax. In other words, women are typically paid less while also paying more for many products.

On top of that, women take on the majority of unpaid labor, working as the primary caregiver for children and aging parents. Because of these factors, many women opt out of the workforce or may work part time. The results of this are twofold: Women earn less and therefore can contribute less to their retirement savings, or may not qualify for an employer-sponsored retirement plan at all.

Let's take a deeper look at why women tend to have less saved for retirement and why it's important for women to invest more for the future.

1. Women face unique financial challenges

When it comes to taking care of children and aging parents, women are more likely to be the go-to caregiver. Given the lack of paid family leave and financial support, this work goes unpaid, ultimately hurting women's finances.

"Women often take more breaks from employment to take care of children or aging family members," Burns said. "This impacts their finances in several ways — their earnings don't grow as much, their Social Security benefits are reduced, and they have less in retirement savings."

On top of unpaid labor, the paid labor women do also tends to be less because of the gender pay gap.

According to data from the Bureau of Labor Statistics, as of 2020, women earned 82% of what men earned for full-time work. For women of color, the gender pay gap is even wider. According to the Center for American Progress, Black women earned 64 cents for every dollar a white man earned, while Hispanic women earned just 57 cents for every dollar a white man earned.

Women earn less but also may end up paying more for certain products because of the "pink tax," which is an added premium tacked onto many women's products like deodorant, shampoo, and other personal goods and services.

And the glass ceiling is real: Women made up just 10% of C-suite and 8% of executive board positions in 2021, according to a recent study from IBM.

Note: According to Fidelity Investments' 2021 Women and Investing Study, only one third of women see themselves as investors, with 14% indicating that they know a lot about saving or investing." from page three of the study.

2. Lack of access to employer-sponsored retirement accounts

According to the US Department of Labor's "Women and Retirement Savings" white paper, 46% of working women participated in a retirement plan. Part of the issue is that saving for retirement is often done with the help of an employer.

Employers typically offer a sponsored retirement plan, such as a 401(k), to full-time employees. As part of the benefits package, employers can choose to match a certain percentage of employees' contributions — typically 3% to 6% of your salary.

However, these plans and matched contributions are generally reserved for full-time employees (though that may change in the next couple of years). Because women tend to take more time off to raise children or take care of elders, they might not have access to these retirement perks.

The pandemic, unfortunately, has set back women even further in their careers and earnings. More women are working part time or have been forced to quit because of the pandemic, leaving them to figure out a retirement plan themselves.

Women can save for retirement on their own through an Individual Retirement Arrangement that isn't associated with an employer.

3. Relationship changes

Many women face financial challenges when there are relationship changes, such as becoming a widow or getting a divorce.

"Because women have a longer life expectancy, they are more likely to be widowed during retirement than men," Burns said. "Widows often take a big hit to their retirement income when their late spouse's Social Security and/or pension benefits end."

According to the US Government Accountability Office report "Older Women Report Facing a Financially Uncertain Future," household income dropped 41% for women who get a divorce later in life, close to double the income loss reported for divorced men. The report also found that household income dropped 37% for women widowed later in life, compared 22% for widowed men.

"Women should protect themselves with insurance. If they are financially dependent on their spouse, they should consider disability and/or life insurance to replace potential lost income if their partner were to die or become disabled," Burns said.

Some women allow their male partners to take the lead in their finances, which may have negative consequences. According to Fidelity Investments' 2021 Couples & Money Study, 22% of women report having little to no involvement in retirement or longer-term planning.

In addition to experiencing financial hardship due to relationship changes because of death or divorce, women are also more likely to experience financial abuse. According to the National Network to End Domestic Violence, financial abuse occurs in 99% of cases involving domestic violence.

Financial abuse can start with something seemingly innocuous like a partner wanting to relieve your stress and "help" manage the finances. In more severe cases, it can result in controlling access to money or how it's spent, sabotaging or prohibiting work, stealing money, or even identity theft.

Important: FreeFrom is a nonprofit that helps domestic-abuse survivors with financial assistance, resources, and opportunities.

4. Women typically outlive men

The good news is this may mean you have a longer time horizon to save for retirement. The downside is that you may also need to save more.

According to data from the US Census Bureau, as of 2017, the average life expectancy for men was 77.3 years old and 82 for women. By 2030, life expectancy is projected to increase to 79.7 for men and 83.8 for women. In 2060, these numbers are projected to increase further, with men's average life expectancy hitting 83.9 years old and women 87.3.

This means women live approximately three to five years longer than men. Given this increase, women should work toward saving more for retirement than men.

5. More older women live in poverty

Retirement is supposed to be your big break from work and a chance to enjoy life on your own terms, without the commitments of work. Unfortunately, many women over 65 end up in poverty. According to a 2021 Congressional Research Service Report "Poverty Among the Population Aged 65 and Older":

"Among women aged 65 and older, about 14.4% of widows, 15.8% of divorced women, and 16.9% of never-married women had total incomes below the official poverty threshold compared with 4.7% of married women."

The Administration of Community Living report, "2020 Profile of Older Americans," says that as of 2019, the median income for older men was $36,921, while the median income for older women was $21,815.

The bottom line

Saving for retirement is a must for everyone, but it's not something that women have equal access to, nor do they have the same opportunities in earning. These factors make it less likely that women will have enough in retirement and make it more difficult to start saving now. While many of these issues require systemic change, women can start to prioritize retirement savings in whatever way they can.

That might mean signing up for a traditional or Roth IRA and contributing something every month, or contributing to your 401(k) and receiving any eligible matches. If possible, women may also consider holding off on Social Security benefits until age 70 to get a boost in financial support.

The stakes are too high for women not to save for retirement. That's why it's crucial for women to start now, with the resources they have. Women work hard in the workplace, taking on unpaid labor, and dealing with systemic inequality — and deserve to take a break in retirement.