The Gender Retirement Gap
Back in March of this year, we wrote about an interesting article penned by Diane Garnick. Diane is regarded as one of the brightest minds on Wall Street and currently works at one of the largest money managers in the world—TIAA where she is the Managing Director and Chief Income Strategist. Last week we ran into each other at the TEXPERs pension fund conference in San Antonio. We both had speaking slots at the conference. Naturally I went to see her speak because she has a lot to teach everyone. Her topic: The Gender Retirement Gap.
You hear much about the gender pay gap in the U.S., but Diane discussed several issues woman face (in addition to the pay gap) and how it will impact their retirement. Garnick’s argument was based mostly on 5 issues that will cause women to face greater challenges than men. We have summarized them below, and have provided a link below for those interested in further details.
- Woman work fewer years over the course of their lives. Because of child rearing and the likelihood of a woman taking time off from her career to care for aging or sick parents, women spend only 29 years in the workforce compared with 38 for men. This means they will have to save significantly more than their male counterparts.
- When women do work, their compensation is lower than men. This gender pay gap is well known in the U.S. but the inequality remains. A woman makes about three quarters what a man makes. This has major ramifications in retirement planning for women.
- Women are more risk averse then men. This surprised me. Women tend to have greater amounts of money in conservative investments such as cash and CDs and fixed income investments, and less in riskier assets such as stocks or mutual funds. Over time the reduced return from conservative investing produces a smaller nest egg.
- Women live longer. We are all familiar with this. The longevity factor plays huge in retirement. The longer you live, the larger your nest egg will need to be.
- Women spend more money in healthcare in retirement. This makes sense but on several levels. A longer life generally means greater costs. And the majority of our healthcare bills come later in life, especially in the last few years. But since women outlive men in general, when they do get sick—or worse—become afflicted with a chronic illness, they have no spousal caretaker, and costs for that type of care rise appreciably.
All things considered, women have significantly rougher sledding preparing for retirement. While the government pays lip-service to this issue there is much work to be done to help women narrow this retirement gap. Garnick has several excellent proposals in her research article. We strongly urge you to read the entire piece: https://www.tiaa.org/public/pdf/income_gender.pdf
Dave Lerman and Jodie Warner