According to a T. Rowe Price study, Baby Boomer women have, on average, less than half what Baby Boomer men do in their 401(k) accounts: $59,000 vs. $138,000. While not quite as bad, Millennial women are on average $30,000 behind their male counterparts.
Of course, I’m technically Gen X (by about one year), but I’m guessing our numbers aren’t any better.
So what’s going on here?
Unequal wages (and savings rates)
Not to trot out the ole pay gap thing, but… Well, that’s a pretty big part of it.
The median incomes of the respondents showed that women earn about $27,000 less than men. And it stands to reason that when you have less, there’s simply less to save.
The lower wage also means lower Social Security payments once the women are retired. So once again they’ll lag behind men in retirement income.
But a lower income can’t be the only issue because women are also saving a smaller percentage of their pay than men. Yet 66% of women under-contributing say they’re saving as much as they can afford.
What gives? Why are men finding more money to contribute than women are?
Pink isn’t our color
Another component of the problem may be the pink tax. Life tends to be more expensive for women. There’s, ahem, monthly personal care products, makeup (which ain’t cheap — even the drugstore stuff tends to be $10-13 these days), and of course clothing.
Women’s clothing tends to be more expensive than men’s. Not to mention that we often need more of it for work. Men can get away with a couple pairs of pants and a few shirts and ties that they can interchange. Women need different skirts, pants, shirts and, usually, shoes.
And products marketed to women tend to be more expensive than general-use ones. I remember a post (I believe by Stefanie O’Connell) where the blogger found that a pain reliever for menstrual cramps was more expensive than the general pain reliever — even though it was the exact same medicine by the same company.
The parent trap
Stereotypically speaking single parents are more likely to be women. Which means some of these women could be shouldering daycare costs all on their own. And we’ve already talked about how expensive that can be.
Even once the kids are out of daycare, you have the expense that comes with school supplies, new clothes, extracurricular activities, etc. Again, if women are more likely than men to be single parents, they’re more likely to bear the expenses on their own.
The end result
In other words, a bigger percentage of women’s budgets is eaten up by expenses compared to men’s — which is a problem compounded by their earning so much less (on average) than men.
That necessarily means that a smaller percentage (of an already-smaller amount) is going to be left over for retirement.
Afraid to invest?
Still, another issue is simply that more women feel uninformed about investing compared to men. According to one study, only 52 percent of women said they felt confident about investing compared to 68% of men.
It was particularly bad with female Millennial respondents. Six three percent said that financial planning in general was too complicated to contemplate. (Though clearly some of them are overcoming this if they’re, on average, only $30,000 behind Millennial men in retirement savings.)
The point is that the majority of Millennial women’s (and 48% of women in general’s) confidence in investing is low, so fewer of them are likely to contribute — or, even if they do make some contributions, to understand how much of a priority they need to make it.
A bleak future outlook
Given all of this insecurity — financial and emotional (about finances) — is it any wonder that a lot more women than men believe they’ll have reduced circumstances in retirement?
Forty six percent of women (compared to 37% of men) think their standard of living will go down once they stop working. Only 1/3 of women thought that they would live better in retirement, compared to nearly half of men. (Though, given the savings rates in this country, it’s unlikely that half of men would really have their standard of living go up; so maybe some of those guys just haven’t done the math.)
Of course, given how much less women are saving, perhaps women are simply being realistic about life in retirement. Since they’re saving less, they know logically that their income won’t be as good, which means that, yep, their standard of living will have to go down.
Still, it’s a concerning trend, that such a large chunk of half of this country’s population has apparently made its peace with being worse off in retirement.
People joke about living on cat food, but I wonder how many are quasi-serious.
My own situation
I’m not in that group. But for a while I was in the population that felt like financial planning was too much to deal with.
I wanted to pay off the mortgage and I ignored retirement except for token $300 contributions. (I say “token” not because the amount is low necessarily but because I easily could’ve afford more if I’d said no to Tim more often and/or put a little less in savings.) I didn’t even bother opening a SEP-IRA because it seemed too daunting.
Still, I’ve finally gotten my act together, and I’m doing my best to make up for it now, socking away money each month into the SEP (which I finally started) and maxing out my Roth.
So I shouldn’t have to rely on the food bank or most social programs (except for Social Security, of course) in retirement. In fact, while my standard of living definitely won’t go up, it shouldn’t go down either. I don’t think, anyway. Retirement calculators are tricky, especially with future inflation and Social Security’s probable 80% fate.
But I’m privileged to be in this situation. (As I know all too well from my days on disability.) I’m lucky enough to have the option of setting aside so much of my check.
That’s because I have a high income, and I don’t have student loans or kid expenses to pay for. Nothing eats up my income except slightly higher taxes and any lifestyle inflation.
A lot of women don’t have that privilege. I know that. It’s probably part of why so many of them feel overwhelmed by the idea of financial planning and why so many of them aren’t saving (or able to save) the ideal amounts.
What can we do?
Really, we can do is hope that more women discover personal finance blogs. Perhaps FIRE blogs, if that’s what gets them motivated to start saving. Or maybe more moderate blogs are better, so they don’t get discouraged thinking they could never replicate FIRE results.
But of course it does them no good to have the investing know-how if they don’t have the money to invest. So society needs to work on the pay gap to be sure that women are paid equally for the work they do.
But it’s not all about equal pay. It’s about the jobs that are paying them.
Some of the highest paid professions tend to be male-dominated (a coincidence I’m sure), so more emphasis needs to be put on encouraging women to go into fields like engineering, computer science and medicine. That means prodding little girls to take a more active interest in math and science in school.
Once they have the equivalent pay, we can make sure that women are better educated about financial planning so they learn that it’s not as overwhelming as it seems. And that, even if it is, they still need to take care of it (or pay someone else to).
But that’s for the future
Of course, all of these are sweeping reforms, which are unlikely to take place in time to help a lot of the people who need to be saving for retirement now. So in the meantime, we need to convince women to take a more active role in their saving.
What we need is more education about retirement saving, ones specifically geared toward women and encouraging them to be more active. Ideally, it would start in high school, but employers need to take steps too. And some are. Some employers are holding these types of seminars for employees. A friend’s company even gave employees time off during the day to attend an informational meeting. We need more of that.
All in all, I understand that retirement planning can be daunting. Obviously. I mean, I’m guilty of letting myself be intimidated to the point of barely bothering. But we can’t let ourselves be backed down by fear or uncertainty.
In the short-term, we need to find ways to get through to women about the importance of finding extra money in the budget (whenever possible) for retirement. And in the larger picture, we need to work on ways to level the playing field to give women a better chance to have the money to save.
Are you ahead or behind on retirement planning? What can we do about this gender gap in retirement savings?