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Women and men should save differently for retirement — here's why

Women earn less over the course of their lifetimes and end up with less retirement savings than men. What can they do to ensure they don't run out of money in retirement?

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When it comes to saving for retirement, you've probably heard the conventional advice to max out your 401(k) contributions if your employer offers a match and to open a Roth IRA so you don't have to pay taxes on your investment gains in the future.

This is all good advice, with one big caveat: Women should be saving for retirement differently than men.

A 2016 study by the National Institute on Retirement Security (NIRS) found that the median household income of women 65 and older was $47,244 and for men, it was $57,144. In other words, retired women had 83% of the median household income as men the same age.

There are many factors that hamper a woman's ability to save for retirement, including receiving less benefits from Social Security and having lower lifetime earnings and longer life spans than men. 

If the cards are stacked against women when it comes to saving for retirement, what can women do to get a financial leg up? Select spoke with David John, a senior strategic policy advisor at the AARP Public Policy Institute, and Sallie Krawcheck, CEO of Ellevest, about why women often have less retirement savings than men do, and what individuals and policymakers can do to help women save for retirement and reduce the retirement savings gender gap.

What is the gender retirement gap?

While the gender wage gap has narrowed over the past few decades, one of the primary reasons women have less retirement savings than men is due to lower lifetime earnings. 

"[Women] have less saved for retirement than men do because of the gender pay gap and because they spend less time in the workforce," Krawcheck says. "So they invest a lower percentage of their wealth than men do."

Women are more likely to take career breaks, leave the workforce entirely or work part-time to take care of children or family members, says John. According to the NIRS study, 60% of caregivers are women. In fact, another study found that the lifetime earnings, on average, of mothers with one child is 28% less than the earnings of women without children.

Lower lifetime earnings translates to lower retirement savings for women, especially when it comes to collecting Social Security benefits — a monthly retirement benefit that individuals can start collecting at age 62. 

The Social Security formula is based on an individual's 35 highest earning years. Since women with children often have fewer high-earning years than men do, they often end up collecting less benefits than men, according to John.

Mothers with one child receive 16% less in Social Security benefits than women without children. (Note: If a woman is the lower earner in her marriage, she is eligible to receive a Social Security spousal benefit that is up to half of the high earner's full benefit. If she receives the spousal benefit, she will not receive the benefit based on her own earnings. When a woman receives the spousal benefit, the motherhood penalty has a negligible effect, a study found.)

"Unfortunately, women are more likely to have lower Social Security benefits even at age 70 than a male with a comparable [job] history," says John. 

John also points to the fact that many women who take career breaks end up losing the money invested in their company's 401(k) or leave it invested in a fund that doesn't have high returns.

"One other serious problem with the current retirement system is that women are much more likely to either be in a part-time position or to be in a job that does not offer any sort of a retirement benefit," says John.

Lastly, women often have insufficient retirement funds because they tend to live longer than men, which means they need more savings despite earning less than men do. In 2020, the average life expectancy for women at age 65 is 21.1 years. For men at age 65, it's 18.6 years.

What can women do to ensure they have sufficient retirement savings?

First off, John recommends that women wait until they reach age 70 to collect the maximum Social Security benefit. All individuals are eligible to receive Social Security benefits at 62, but you'll only receive a fraction of the full benefit if you collect it before you reach full retirement age, which depends on when you were born. For every year after you reach the full retirement age and before you turn 70, the benefit you receive increases each year.

"If you delay taking that benefit past your full retirement age, so either three or four years, your benefit goes up by 8% every year," says John. "In other words, if your age is 67 and you wait until 68, you get 108% of what you would have gotten a year earlier. If you delay until age 70, you're talking about an almost 24% increase."

One study found that since married women are, on average, two to three years younger than their husbands, they tend to retire at the same time as their husbands, even though they have shorter careers and longer life expectancies. While it may be tempting for women to collect Social Security benefits when their partner starts collecting them, they're better off waiting until they're eligible to collect the full benefit. 

Women automatically receive the spousal Social Security benefit if their partner makes significantly more than them. For example, if a woman's Social Security benefit is $750 a month, and her spouse's benefit is $2,000 a month, Social Security will automatically give the $1,000 spousal benefit to the woman because she would earn more from the spousal benefit than from her own benefit.

Spouses are only eligible to receive the spousal benefit once their partner receives their benefit. A couple who receives the spousal benefit can earn more if they both wait until they reach full retirement age to collect benefits because the monthly amount is reduced if either one collects benefits before they reach full retirement age.

If a woman receives her spousal Social Security benefits before she reaches full retirement age, the benefit will be less than half the primary worker's amount. If she waits until her full retirement age, the spousal benefit will be 50% (this also applies to same-sex couples).

John also recommends that women front load their retirement contributions in their early 20s and 30s before they have children. Once they have children, John suggests that women continue saving for retirement to make sure they have enough to supplement what they'll receive from Social Security while accounting for the longer retirement period they'll have in comparison to their spouse.

Women should consider using a Roth IRA for their retirement investments. With a Roth IRA, money is allocated toward retirement after taxes so investments grow tax-free. There is an income limit on a Roth IRA: If you're a single-filer you must earn less than $140,000 annually, and if you file jointly with a spouse, your combined income must be less than $208,000. Companies like Charles Schwab, Vanguard and Betterment offer Roth IRAs with no minimum deposits and low fees.

If you want a robo-advisor that's specifically geared toward women, Ellevest offers both traditional and Roth IRAs. Ellevest's algorithm accounts for factors that affect women's retirement savings such as having longer life spans than men and earning less than them, according to Krawcheck. In order to use the Ellevest retirement accounts, you have to pay a monthly fee with either Ellevest Plus or Ellevest Executive.

What are the potential policy solutions to the gender retirement gap?

There are a variety of policy solutions that have been proposed to narrow the gender retirement savings gap, including a proposed caregiver credit for Social Security. A caregiver credit would assign a value to the time individuals spend out of the workforce taking care of children and aging or sick family members. This value would then be used to calculate Social Security benefits, so people would be compensated for their caregiving responsibilities. Paid family and medical leave could also help alleviate the burden of individuals who take time off take care of their family.

Another suggestion is a universal retirement savings system, which would automatically enroll all employees in an individual retirement account.

Bottom line

For women, saving for retirement can be tough when the motherhood penalty impacts both their lifetime earnings and their retirement savings. Saving for retirement can be a daunting task for most people, especially if you're told you need to front load your contributions early in life and invest for a longer time horizon. However, for women it may be essential to start saving as much and as early as possible to avoid running out of retirement savings later in life.

Correction: A previous version of the article incorrectly stated that the value of the spousal benefit is based on when the higher earning spouse chooses to collect. The article has been updated to reflect that the spousal benefit is based on when the spouse chooses to collect benefits on their partner's work record.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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