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Should Women Save for Retirement Differently Than Men?

With cost of living outpacing salary growth and an ever-increasing average lifespan, saving enough for retirement is daunting for anyone. Women, in particular, face challenges on the road to retirement that men do not, which result in reduced quality of living during their later years.
A survey by the Transamerica Center for Retirement Studies found only 12 percent of working women are “very confident” in their ability to retire comfortably. An additional 46 percent are “not too confident” or “not at all confident.”
This lack of confidence is, unfortunately, warranted. The average Social Security benefit for women 65 and older is less than $14,000 per year, compared with $18,000 for men. As a result of this disparity, Women over 65 are 80 percent more likely than men to be living in poverty, according to the National Institute on Retirement Security.
TIAA Chief Income Strategist Diane Garnick authored a report in 2016 that found the U.S. retirement system to be gender-agnostic, on the surface. Upon closer consideration, she found it was the way women’s professional and personal lives unfold compared to men’s that led to the difference in retirement savings.
“Let’s say that a man and a woman start with the same education, at the same company, at the same pay … If the man saves 10 percent of his income, for the woman to have the same amount of savings at the moment of retirement, she literally needs to save 18 percent—a factor of 1.8,” Garnick explained in an interview with Yale University.
That nearly-doubled rate of savings is rarely realistic for women, and after a few decades, it shows.
A study by education firm Financial Finesse found that while the average 45-year-old man faces a savings shortfall of $267,000 to retire comfortably at age 65, the average 45-year-old woman faces a shortfall of $522,000 – more than double.
Research from Vanguard also shows, however, that when they’re working, women tend to save for retirement at higher rates than their male counterparts. So how do they end up so far behind?

Why Women Struggle to Save Enough for Retirement

There are four main factors that contribute to the challenges women face in retirement:

1. Women Tend to Earn Less Than Men

According to the Economic Policy Institute, the average white woman makes 84 cents to the dollar that a man makes. For women of color, the gap is considerably wider. When a woman participates in a typical employer-provided retirement savings program, like a 401(k) which employees generally contribute to based on a percentage of their income, a contribution of the same percentage will amount to less on a woman’s salary than on a man’s.

2. Women Often Take Time Away From the Workforce

Studies suggest women spend an average of seven years out of the workforce to raise children. In later, years it is often a woman who cares for aging family members. This means women tend to work only about 75 percent of the years that men work. Even in families where this makes financial sense during the caregiving years (because the cost of hiring an outside caregiver outweighs a woman’s earnings, for example), this time away from the workforce results in lower earnings and lower savings during those years – especially for families whose main retirement plans are based on a percentage of income.
The problem compounds with two additional considerations. One, “when people make the decision to be a stay-at-home parent, which happens quite frequently for women – about 22 percent of all parents are stay-at-home parents, and of those, a vast majority are women – the amount of money that they are allowed to put aside each year for retirement drops from $18,000 to $5,500,” said Garnick.
Two, because Social Security benefits are calculated based on a worker’s 35 highest years of earnings, if a woman spends fewer than 35 years in the workforce, the Social Security Administration will fill in those missing years with zeros, significantly reducing many retirement plans.

3. Women May Be More Conservative With Their Money

“Women are much more risk averse,” said Garnick. “They tend to hold more cash, whereas men hold more stocks and other high-returning, or potentially higher-returning, assets. This means when the market does well the returns that women earn are not as robust.”

4. Women Live Longer Than Men

Because women have longer life expectancies than men, their retirement savings need to last longer.
“Women spend a lot more money in retirement than men,” said Garnick. “Women live about two and a half years longer than men, so their expenses extend further into the future. Many women incorrectly think about being the sole providers to their household for two and a half years longer than their spouse. That would only be true if the husband and wife were the same age, which is almost never the case.”
“We conducted a study looking at the Social Security and LIMRA data and discovered if a husband and wife retire at the same time (the husband at 65 and the wife 63), after the first spouse passes away, the second spouse is likely to live about eight years. But there’s also a very long right tail. Fifteen percent of the ladies are going to live 20 years or more after their spouse dies. So when we talk about spending more money in retirement, you could literally have decades of being the sole provider to your household.”
These challenges, as dire as they may seem, are not insurmountable.

Ways Women Can Position Themselves for Comfort in Retirement

Invest Early

The wage gap between men and women is the smallest in early career. By focusing on saving for retirement early, before taking any time away to act as a caregiver, women can harness the impact of compounding interest.

Keep Skills Fresh

Online training programs and the gig economy provide women opportunities to develop new skills, maintain relationships and stay in the game while taking time away from a full-time career, making workforce re-entry go more smoothly.

Maintain Adequate Life Insurance

Without the correct amount of life insurance, the death of a spouse could mean the loss of a crucial income source on top of a beloved partner. A well-thought out life insurance policy will ensure the family will be cared for and bills will get paid without drawing from the retirement savings accounts. A SelectQuote licensed agent is here to help you determine what policy works best for you and your family. Visit selectquote.com or call (800) 279-6192 for your free personalized consultation.
There is no one-size-fits-all plan for a comfortable retirement, for men or women. Factors including lifestyle goals, current income and expenditures, spousal support, dependents, health, inheritances and overall financial picture all contribute to an individual’s distinct retirement needs.
To make sure you’re doing all you can for retirement, speak with a qualified financial services provider about your situation. 
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