The Gender Earnings Gap Creates A Snowball Effect On Retirement Saving

More than half of the personal wealth (51%) in the U.S. is controlled by women, with nearly all women (96%) having primary responsibility for their family’s financial decisions.

But women still face financial planning challenges, led by an income gender gap that leads to a retirement savings gap. Add the caregiving challenges brought on by the COVID-19 pandemic, and you have a population group at financial risk.

Addressing these challenges was the topic of a session at a recent Insured Retirement Institute session. Melissa Kivett, managing director and head of enterprise, strategic relationship management, with Prudential, discussed some of the factors putting women’s retirement at risk and what the industry can do to help women’s financial challenges.

Women represent a huge underserved market, Kivett said, noting that as their family CFOs, women have decision-making influence over $11.2 trillion in wealth. Yet 67% of women believe they are misunderstood by their financial advisors and 71% of women who do not have an advisor are interested in working with one.

COVID-19 hit women especially hard, she said, with women particularly affected by job loss and school closures. During the pandemic, the unemployment rate for women in the U.S. hit 16.2% - three percentage points higher than the rate for men and the first time since 1948 that unemployment for women went into the double digits.

The income gender gap also opened wider during the pandemic, Kivett said. She cited figures from the U.S. Census Bureau and Morningstar that showed women historically earned an average of 82 cents for every dollar a man earned, and women’s average lifetime earnings were 60% that of men. During the pandemic, 13% of women received a pay raise compared to 26% of men, while 9% of women received a promotion compared to 34% of men.

She said this earnings gap creates a snowball effect when it comes to saving for retirement. Because women earn about 20% less than men on average, women’s Social Security benefits are 20% less than men’s. Women’s retirement savings on average are 32% less than men’s, and the median annual income of women ages 65 and older is 41% less than men’s.

Caregiving responsibilities are throwing a monkey wrench into women’s retirement savings. The Census Bureau and the Family Caregiver Alliance report that 40% of women reduced their work hours to care for a family member as opposed to 28% of men. Meanwhile, 25% of mothers had to quit their job to care for a family member as opposed to 10% of fathers.

Women have been turning to temporary or gig work in an attempt to have more control over their working hours or to make up for lost full-time employment, Kivett said. But gig work is not always the answer for a woman’s financial challenges. Research from UCLA showed that eight of 10 gig workers did not make enough money to cover their household expenses.

How can the industry “widen the circle” to address the challenges of more Americans? Kivett broke it down into four ways to drive change.

1. Educate employees and drive awareness through employee resources, inclusive solutions and driving the conversation.
2. Build more inclusive business practices through recruiting efforts, pay transparency, women-specific financial planning training and segment-driven product development.
3. Invest in insights beyond the financials by uncovering financial needs, going deeper in research and leveraging insights to drive change.
4. Educate financial professionals by building segment-specific training, broadening the scope of prospects and viewing diversity as a competitive advantage.

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected]. Follow her on Twitter @INNsusan.

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Susan Rupe is editor in chief, magazine, for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected].