Fixed Income Strategies

4 ways women can close the retirement earnings gap

Key Points
  • The overall gender wage gap is still over 21 percent, with women earning only 78 percent of what men make.
  • Many women will spend part or all of retirement alone, as they tend to outlive male partners.
  • To plan for retirement, women should be disciplined about saving, have a game plan, optimize Social Security claiming strategies and consider delaying benefits as long as possible.
The better a woman understands her own financial situation, the more equipped she will be for retirement.
Willie B. Thomas/Hinterhouse Productions | Getty Images

Women work hard for their money, and they're working harder than ever today.

In March of 2017, women made up 47 percent of the workforce in the United States, owned close to 10 million businesses and were the sole or primary breadwinners for 40 percent of families with children under age 18.

In the 40 years between 1975 and 2015, the number of women with children under 18 who also participated in the workforce increased 23 percent, to 70 percent from 47 percent. During that same period, the number of women with college degrees increased 33 percent — to 41 percent from 14 percent. By 2015, women held 52 percent of all managerial and professional jobs.

Women haven't closed the gap

Women have clearly made enormous strides in the workplace. Unfortunately, when it comes time to retire, many women still do not have the savings they need. According to a 2016 study by The National Institute on Retirement Security (NIRS), women of all age groups have substantially less income for retirement than men. For women over 65, the income disparity can be as much as 25 percent. The study also found women are 80 percent more likely than men to be impoverished at age 65, while women between 75 and 79 are three times more likely than men to be living in poverty.

Though more and more women are starting to earn more than their significant others, the overall gender wage gap is still over 21 percent, with women earning only 78 percent of what men make. Women tend to spend fewer years in the labor force, often for lower pay, and they spend more years alone at the end of their lives.

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Lower wages, less cumulative time in the workforce, and work and pay gaps associated with exiting and reentering the workplace mean women tend to have lower Social Security balances, reduced assets, smaller pensions and fewer opportunities to save or contribute to their retirement plans. A longer life expectancy means their money needs to sustain their lifestyle for longer periods of time.

Many women are finding themselves unprepared to meet the financial challenges of retirement. It doesn't have to be that way. By developing a long-term, disciplined approach to financial planning, women can increase the likelihood the money they work hard for during their earning years will also work hard for them throughout their retirement.

Here are four ways women can close the earnings gap in retirement:

1. Be disciplined about saving for retirement. It can be tough to save for retirement when you're facing financial demands associated with raising a family and meeting ordinary living expenses, but regular, methodical savings will pay considerable dividends in the future.

If you have access to a 401(k) plan at work, contribute as much as possible, as soon as possible, for as long as possible, even if your partner is participating in a separate plan. Contribute enough to receive at least the employer matching contribution. If your employer doesn't offer a retirement plan, you don't work enough hours to qualify for one or you've taken time off to care for family, contribute the maximum amount allowable to a tax-deductible traditional individual retirement account or a non-deductible Roth IRA. Sole proprietors and contractors can establish a non-deductible IRA, SEP IRA or SIMPLE IRA. Since IRA contribution eligibility is determined by income tax filing status and household income, it's essential to understand your eligibility to maximize contributions.

Take advantage of tax-deferred retirement plan options, but don't overlook tax-free savings options, such as Roth IRAs. Though they are not tax-deductible, Roth IRAs are a powerful savings vehicle because they grow tax-free. Just as investment diversification is important, so is tax diversification. If possible, try to build both tax-deferred savings and tax-free savings for retirement.

Roth IRAs allow you to establish monthly systematic contributions for as low as $50 per month (depending on the provider), which can be a relatively painless way to build tax-free retirement savings.

2. Have a plan. It's important to develop an investment strategy and retirement plan that will see you through all your retirement years, either alone or with a partner. If you are married, make sure you have input in the financial planning process to help you and your partner achieve your retirement goals. It's important to develop a strategy that supports the goals and objectives of both partners without being uncomfortably aggressive for one or overly conservative for another.

A good retirement plan prepares you for the unexpected, and develops an income strategy that maximizes Social Security benefits in retirement.

3. Optimize Social Security benefits. More years in retirement mean women have a greater chance of exhausting other sources of income, making them more dependent on Social Security. Though Social Security's cost-of-living protections (which are adjusted for inflation) help women, the lifetime earnings gap between men and women tends to make their overall benefits lower. To optimize Social Security benefits, you need to understand what your benefits are and when you're eligible to receive them.

As of 2018, full retirement age is:

Full retirement age based on year of birth

Year born FRA
195566 + 2 months
195666 + 4 months
195766 + 6 months
195866 + 8 months
195966 + 10 months
1960 and later67

4. Strategize benefits claims. Although you can retire before your reach your full retirement age (FRA), you don't have to start taking Social Security benefits as soon as you retire. Claiming benefits early reduces your lifetime monthly benefit, while delaying your benefits past FRA increases your lifetime monthly benefit. It's important to develop an income strategy that maximizes benefits for your specific financial situation.

For married couples, securing the largest survivor benefits should be a primary objective. Survivor benefits never increase beyond their value at FRA, but regular benefits accrue delayed retirement credits (DRC) worth 8 percent per year every year until age 70. By waiting until after FRA to claim benefits, women can accrue DRC that will increase their lifetime monthly benefit during retirement.

Since they are more likely to spend at least part of their retirement years alone, women need to understand how Social Security benefits work and how to optimize those benefits throughout their retirement years.

Most women spend a portion of retirement alone

Perhaps one of the most significant factors contributing to financial hardship for women over 65 is the reality many will spend at least a portion of their retirement years alone.

The life expectancy of females is currently 4.9 years higher than that of males. Of married American women, 7 out of 10 will eventually become widows, some as early as the age of 59. Not only are women being forced to manage retirement on their own after a spouse dies, but they're doing it for lengthier periods of time.

Every woman, no matter what her current financial situation is, should assume a more active role in her financial well-being.

Married couples need to make provisions for the probability that one of them, often the woman, will spend at least a portion of their retirement alone. Ensuring you have adequate life and long-term care insurance can help ease the burden when the loss does occur. Having a plan for dealing with the inevitable may feel uncomfortable or morbid, but having prepared financially to be alone allows you to concentrate on what matters most.

It pays to be informed

Every woman, no matter what her current financial situation is, should assume a more active role in her financial well-being. Knowing what she has, what she will need and how to make provisions for what could happen is a vital part of preparing for retirement. So is building her financial IQ, learning how much risk she can tolerate, and discussing financial matters with family members and significant others. The better a woman understands her own financial situation, the more equipped she will be for retirement.

(Editor's Note: This column originally appeared on

— By Marguerita Cheng, co-founder and CEO of Blue Ocean Global Wealth