How the gender gap thrives in retirement -- and what women can do about it

October 01, 2010

| MoneyRates.com Senior Financial Analyst, CFA

The generation that spearheaded the women's liberation movement of the 1960s and 1970s has now reached retirement age. Women who remember that era may be shocked to find that the gender gap is worse than ever in retirement.

According to the U.S. Bureau of Labor Statistics, women who work full-time earn an average of 78.8 percent of what men earn. In retirement, this earnings disparity gets even larger. According to data from the Employee Benefit Research Institute (EBRI), total income for women 65 and older is only 53.7 percent of income for men in that age group.

This retirement earnings gap has actually grown over the past 25 years -- the total income for women 65 and over was about 60 percent of the corresponding figure for men back in 1985. In short, the gap is not merely a last vestige of an earlier time.

Women can fight this trend by taking greater control of their finances, from how they manage their careers to household savings rates to retirement decisions.

Here are some tips about what women can do to minimize the retirement earnings gap during working years, and more tips once they reach retirement age.

What to do while you're working

  • Participate fully in financial planning. No matter who takes the lead in your household's finances, you need to stay fully informed and have a voice in major decisions. This will not only help you shape the future that awaits you, but it will better prepare you for situations in which you'd have to make those decisions by yourself.
  • Value your career. Women 65 and over get only 77.1 percent of what men in that age group get in annual Social Security benefits, and only 41.5 percent of what men get from pensions. This most likely reflects the result of a disparity in career earnings. In a two-income household, it may not seem to make a difference who the lead earner is when it all goes to benefit one household, but keep in mind that career earnings can also affect you in retirement.
  • Raise those personal savings rates. The average annual income of women 65 and over is only $20,322. Regardless of any disparity with men, that number needs to come up, and achieving higher personal savings rates throughout your career is one way to make that happen.
  • Don't get too conservative. According to a study by Northwestern Mutual, women tend to be more conservative about investments than men. While stocks and real estate in the early 21st century have made everyone more conscious of risk, keep in mind that when it comes to long-range retirement investing, being too conservative can actually be imprudent.

What to do nearing retirement

  • Understand your spouse's retirement benefits. Decisions such as whether to take early benefits or lump sum distributions affect both spouses in a relationship -- especially if the retirement plans involved do not have full survivor benefits.
  • Plan for a scenario where you are the sole earner. If you are over 65 and still married, even if everything seems fine, you should understand what would happen if you suddenly found yourself as the sole earner.
  • Consider extending your career. Women 65 and over have only 32.9 percent of the employment income of men, which suggests that fewer of them are continuing to work. Given that women have longer lifespans than men, it should actually be the other way around -- even after age 65, there is still time to work on closing the gender gap.

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