Understanding the Retirement Security Gender Gap

By Emma Hecker and Kenneth Megan

The United States has a retirement security problem. The median family in the bottom 50 percent of the wealth distribution has saved nothing — $0 — for retirement, which is unsurprising given that around a third of private-industry workers lack access to an employer-sponsored retirement plan. Retirement security is even more dire for women: Compared with the average male worker, working women tend to work in lower-paying industries, have a greater unpaid care burden, and earn less on average, all of which translates to lower levels of retirement savings. At the same time, women generally have longer life expectancies than men, meaning that they must often stretch their savings for longer.

In response to these challenges, the Economic Innovation Group developed a proposal to expand access to retirement savings for those left behind. Modeled after the federal government’s successful Thrift Savings Plan, this program would address many of the challenges facing retirement security, including for women, by providing enhanced access to retirement savings accounts and promoting wealth creation through benefits targeted to low- and moderate-income workers.

The Challenge

Women are far more likely than men to suffer from retirement insecurity. For example, the average woman’s retirement savings is 70 percent of the average man’s, and women over age 65 are 80 percent more likely than men to live in poverty, and are more likely to exhaust retirement savings in old age. The risk of an insecure retirement is even greater for women of color, and those who are divorced, never married, or widowed. 

Several factors affect womens’ ability to save for retirement. Women are more likely to work in low-wage jobs: despite comprising close to half of the labor force, women are in almost 60 percent of low-wage occupations, defined as jobs that pay a median salary of $11 per hour.

Women also do more unpaid work than men, and these additional domestic and family responsibilities can result in career interruptions, part-time work, and fewer opportunities for career advancement and consistent retirement contributions—all of which limit the ability to build a nest egg. The average American woman spends 271 minutes each day doing unpaid work, while the average man spends just 165 minutes doing unpaid work. Moreover, research shows that women with one child earn, on average, 28 percent less over their careers compared to childless women—a phenomenon known as the “motherhood penalty.” Women are also more likely to leave the workforce prematurely to care for aging parents and relatives, which further stems their lifetime earnings potential and years of participation in the labor force to save for retirement. 

All of these factors help explain the fact that women, on average, earn just 81% of men. These wage gaps exist within most occupations, and hamper womens’ ability to save for retirement. 

How a retirement savings program modeled after the Thrift Savings Plan can help improve women’s retirement security 

EIG has proposed developing a retirement program modeled after the federal Thrift Savings Plan (TSP)—the government’s retirement plan for federal workers. It would be targeted towards workers who lack access to an employer-sponsored retirement account (who tend to be lower-income), and would be characterized by simple and low-cost investment options, as well as an auto-enrollment process that mirrors the existing framework for employer payroll withholding. Importantly, the federal government would also provide federal matching contributions to low- and middle-income workers, which would allow these individuals to grow a nest egg and have a tangible stake in financial markets. (See our report for more details on the plan.)

While EIG’s proposal would strengthen retirement security writ large, it would have a disproportionately positive effect on women:

  • Federal matching contributions would target wealth-building among low- and middle-income workers, and therefore work to reduce long-term gender wealth gaps.
  • Access to a proven retirement savings framework. Providing access to a proven model like the TSP would help level the playing field of retirement security, empowering more women to save for retirement in their older years. 
  • Guaranteed Lifetime Income Options. An important feature of the TSP is the option to purchase an annuity, which provides regular payments for the rest of the beneficiary’s life. Annuities help mitigate “longevity risk,” which is the risk that retirees will outlive their savings. Because women have higher average life expectancies, they experience heightened levels of longevity risk and could benefit from lifetime income options. Research also suggests that women tend to value the security and guarantees that stem from annuities.
  • Support for gig economy and part-time workers. The current retirement system leaves many non-traditional and part-time workers without access to a retirement savings plan. EIG’s proposal would help fill this gap by automatically enrolling 1099 tax filers when they file required quarterly taxes and extending eligibility to part-time workers as soon as they are hired. In turn, since women make up a large share of gig-workers and are disproportionately represented in part-time positions, this proposal would go far to bolster their retirement readiness. 

The gender pay gap, higher levels of unpaid work, longer life expectancies, and lower levels of retirement coverage all increase the likelihood that women will see a reduction in their standard of living in their golden years. If adopted, EIG’s proposal would disproportionately benefit female workers and allow more women to retire with financial security.