Ageing and Longevity

3 reasons the retirement crisis is a women’s crisis – and 3 reasons it isn't

Three key factors contribute most to gender disparities in retirement incomes – women often make less, work differently, and live longer.

Three key factors contribute most to gender disparities in retirement incomes – women often make less, work differently, and live longer. Image: Unsplash/Towfiqu barbhuiya

Anne Ackerley
Head, Retirement Group, BlackRock
KC Boas
Head of Retirement Thought Leadership, BlackRock
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Ageing and Longevity

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  • A gender pension gap existing in nearly every country across the world, with women's retirement balances often 30% lower than men's.
  • Three key factors contribute most to gender disparities in retirement incomes – women often make less, work differently, and live longer.
  • Here we outline what we believe really drives these imbalances, as well as some solutions that could help close the gender retirement savings gap.

Something alarming is happening with women and retirement. According to the World Economic Forum’s report, Living Longer, Better, a gender pension gap exists in virtually every country.

As the world’s largest asset manager, we see this play out around the world. In our experience with US-based 401(k) plans, we find that women’s retirement balances are often 30% lower than men’s. Lots of ink has been spilt trying to account for this gap – and, in the process, some misconceptions have emerged.

If you’re a retirement nerd, like we are, and have read dozens of papers on this, you’ll recognize three common refrains. Women don’t:

  • Make enough
  • Save enough
  • Take enough risk

Our experience suggests otherwise. And we think it’s time to set the record straight. In this piece, we outline what we believe really drives the 30% gap – and what’s just noise. At the same time, we point to solutions that we think could help close the gender retirement savings gap.

Here are three myth-busters about women and retirement.

Myth #1: Women lack capacity to save

A common misconception is that many women simply don’t make enough to be able to save for retirement.

Yet, programmes that provide savings vehicles to low-income women overwhelmingly find that, when you give women an opportunity to save for retirement, they do it.

Have you read?

For example, the Women’s Institute for a Secure Retirement and the National Latina Organization designed a programme that encouraged participants to save at least $20 a month with a financial incentive after six months.

Of those who participated, about four in five did so consistently, saving an average of $167. In other words, when given a way to save, women can overcome formidable obstacles – even lower incomes.

Myth #2: Women save less than men

Another myth is that women don’t save enough. It’s an outdated argument, in our view, that doesn’t account for modern plan design features.

Because of auto-enrolment, most employees – regardless of gender – are now defaulted into their plan at the same contribution rate.

In our experience, women participate in 401(k) plans at equal rates as men, and contribute as much, if not more, than men do – despite the pay gap (more on that later).

Myth #3: Women take less risk than men

There’s a general feeling that women are less aggressive investors than men – which stems from analyses that look at participants who are setting the asset allocation themselves.

The problem? Most 401(k) investors today aren’t setting their own investment allocation. Instead, they’re using target date funds – the most common default option among 401(k) plans – which automate asset allocation decisions based on age.

A 45-year-old man will have the same equity exposure as his female counterpart. When the asset allocation decision is off the table for both men and women, it’s hard to argue that risk tolerance is driving retirement outcomes.

What drives the gender retirement wealth gap?

Myth-busting aside, let’s explore the three key things that we believe are contributing most to gender disparities in retirement outcomes. It’s what we call the triple-whammy: women often make less, work differently, and live longer.

#1: All roads lead to the pay gap

It stands to reason that, if you have a gender wage gap, you’re going to have a gender wealth gap at retirement, since contributions to retirement accounts are typically a percentage of pay.

Let’s do the maths. In Figure 1, US Census data on average earnings shows that what starts as a 20% pay gap soars to a 44% pay gap over the course of a woman’s career.

Figure 1: What happens to the gender pay gap over time?
Figure 1: What happens to the gender pay gap over time? Image: BlackRock analysis using US Census data, QWI Explorer tool for Q4 2021 (latest available data)

From here, we can model how a widening wage gap impacts hypothetical retirement account balances over time.

In Figure 2, we assume a 6% contribution rate and 6% annual returns. All else equal, by 65 women have a retirement balance that is 31% less than men.

Figure 2: Hypothetical 401(k) balance by gender
Figure 2: Hypothetical 401(k) balance by gender Image: BlackRock analysis using US Census data, QWI Explorer tool for Q4 2021 (latest available data)

(Note: We chose a 6% contribution rate as it is a common plan default rate. We chose a 6% rate of return based on historical 60/40 portfolio returns. The point is not what the rates are – but rather that they are held constant across men and women.)

It’s a stark example of the power of compounding – and a stern reminder of the impact that employers and policymakers have on women’s long-term economic security. It’s why we believe more should be done to accelerate closing the pay gap.

#2: A different workforce experience

Even in 2023, women do the lion’s share of unpaid work – often leaving the workplace to care for children and elderly family members. These career interruptions coincide with important earning years.

It hurts individuals and economies alike. Time in workforce is crucial for accumulating retirement assets. And, because family leave is often unpaid, you can’t make 401(k) contributions, even if you wanted to and could afford to do so.

At the societal level, a recent BlackRock report found that raising the average female labour force participation rate across Organisation for Economic Co-operation and Development (OECD) countries by 10% could yield a 5% increase in economic output.

Employment type is also important, yet often overlooked. In the US, there is no requirement for employers to provide retirement benefits to workers. Thus, lower-paid and part-time workers – many of whom are women – miss out on workplace retirement plans.

While there are options for individuals to save on their own, these accounts often lack the support, investment options and cost incentives of most workplace plans. It’s an uncomfortable divide that has yet to be addressed by the broader retirement system – though some efforts are under way.

For instance, new technology providers are emerging to help small businesses start 401(k) plans – and several US states are establishing retirement plans, requiring employers to either offer a plan or to enrol employees in the state offering.

#3: The longevity quandary

Living longer should be a good thing – but it can complicate retirement finances. Case in point: Women tend to outlive men by about six years; and, while the average retirement age for men is around 65, women tend to retire earlier at 62. Despite women earning less over fewer years, their retirement nest eggs must last longer.

One way to address longevity risk is through guaranteed forms of income. Today, where traditional pensions are rare, social security is the only form of retirement income most people can count on.

Discover

What's the World Economic Forum doing about the gender gap?

It’s crucial, then, that everyone, especially women, do what they can to maximize their benefit amount through claiming strategies. Savers could also consider other forms of guaranteed income, like a partial annuity.

In a recent paper we published with the Bipartisan Policy Center, we quantified the potential impacts that each of these tactics can have on people’s ability to spend in retirement. Just adding guaranteed income and adjusting your asset allocation could increase spending power by almost 30%.

Going from 30% to 0%

Because there are several factors driving the gender retirement wealth gap, there are several levers we can pull to reduce it.

Many of which we’ve mentioned here – from employer pay practices and paid leave policies to plan access and ways to optimize retirement income.

That’s the good news. The bad news is that progress can be slow. This is why we believe we need renewed focus from across the retirement ecosystem to create a more equitable retirement system for all.

Material is provided for educational purposes only and should not be construed as research. The information presented is not a complete analysis of the global retirement landscape. The opinions expressed herein are subject to change at any time due to changes in the market, the economic or regulatory environment, or for other reasons.

The material does not constitute investment, legal, tax, or other advice and is not to be relied on in making an investment or other decision.

Investing involves risk, including possible loss of principal.

Asset allocation models and diversification do not promise any level of performance or guarantee against loss of principal.

The opinions expressed in third-party articles or content do not necessarily reflect the views of BlackRock. BlackRock makes no representation as to the completeness or accuracy of any third-party statement.

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