Women, on average, are living longer than men. And women make up an increasing percentage of the total workforce. While these trends are overall positive for women, they create additional challenges when it comes to planning for retirement.
One issue women face is a larger gap between their expected needs and expected resources at retirement. “Resources are expected to be lower at retirement age for women than for men,” says Grace Lattyak, associate partner at Aon.
“A lot of this is driven by lower savings rates,” she says. “The Real Deal: 2018 Retirement Income Adequacy Study found that the average man is saving 8.1 percent and the average woman is saving 7.2 percent.” Women also have lower overall account balances when compared to men -- just $94,000 for women versus $165,000 for males, Lattyak says.
The pay gap between women and men also contributes to this difference since women’s lifetime earnings are less than men’s, she points out.
But women’s financial need in retirement is also greater since they need to prepare for a longer life expectancy. “Women need about one times more pay than men to meet the average life expectancy,” says Lattyak. “Where the average retirement need for men is 10.7 times pay, the average for women is 11.6 times pay,” she says.
“That's driven by the longer life expectancy for women because once someone reaches age 67, half of those women are going to live until at least age 90, if not longer, and that same number is 88 for men,” Lattyak says. These additional years of life expectancy require most retirement income to fund them.
For employers, it’s important to take steps to help their female employees be better prepared for retirement. Here’s what employers can do to help eliminate the gender retirement gap.
Employers need to be aware of women's unique needs in terms of planning for retirement and focus their retirement planning efforts on helping them prepare better for retirement.
“As employers are thinking about their population, the solutions that work best for their population might not be the average solution if they don't have an average workforce,” Lattyak says. “If they have a largely female workforce, they might need more longevity insurance or guaranteed income solutions in their defined contribution plans.”
When employers are designing their employee retirement plans, they can design them around the needs of their own workforce, instead of for the average workforce, she advises.
Employers can also help reduce the gender retirement gap by communicating more effectively about retirement planning and the unique financial needs that women face in retirement. “Once the plan design is in place, success in having the retirement plans used effectively hinges on the communication,” says Lattyak. “By understanding who's in your population, you can more effectively communicate to those participants, and target their needs.”
Helping educate female employees about how their needs might impact their financial planning allows them to better plan for factors like possible time out of the workforce. If women are going to time out of the workforce for maternity or childcare-related leaves, for example, communicating the importance of either trying to continue to save during those periods, if that's possible within the plan, or not using retirement savings during those leaves, can really help women better plan for their full retirement needs financially, says Lattyak.
Employers can also take a more active role in helping women manage their longevity risk. “While it is important for everyone, it's even more important for women, because they have the longer expected life expectancy,” says Lattyak.
“Employers should give serious consideration to finding better ways to pool that risk through annuities or other structured drawdowns that can be done within the retirement plans,” says Lattyak. “It is very costly for individuals to self-insure and can be more beneficial if you can pool your risk with a large pool other people.”
For women who reach age 67, one in five of them are expected to live to age 98. So just planning for the average life expectancy isn't a feasible option, Lattyak says. Employers can help women better plan financially for extended life expectancy post-retirement and for the related increase in health care costs that they will likely experience.