Financial Gender Disparities Deepen: Women Face Widening Retirement Gap

Besides the pay gap and the wealth gap, women have another financial hurdle to clear. Call it the ‘retirement gap’ that seems to widen as women approach their golden years.

According to Bank of America’s 2023 Financial Life Benefits Impact Report, on average, men have a 401(k) account balance of $89,000 – 50% more than the average woman’s sum – $59,000. 

Unfortunately, the report shows fear of the ‘gap’ seems most pronounced as women approach the colossal leap from the world of work into retired life.

In a recent Fidelity report, American women appear increasingly less confident about their retirement prospects – and it gets worse the closer they get to closer to retiring. 46% of Boomer women don’t think they’ll ever be financially prepared enough to retire, compared to 32% for Gen X, 19% for Millenials and 10% of Gen Z. Another alarming find: out-of-touch views on health care costs. The average woman will need $165,000 for health care expenses in retirement; however, female respondents anticipated needing only $98,900.

All told, financial barriers threaten to take the shine off women’s golden years.

Understanding the root causes of older women’s worries about retirement funding and the challenges of estimating healthcare budgets is essential. As well as shining a light on the encouraging progress made in women’s preparedness, retirement advisors aim to equip more women with the tools and frameworks they need to secure their post-work future. 

Underconfident? 

Confidence levels don’t always track with actual savings levels. While nearly half of Boomer women feel underprepared, most younger generations feel assured they can reach their retirement goals. The data points to moderate progress, which gives cause for cautious optimism. 

Fidelity found that, despite the apparent trailing levels of confidence, the retirement savings gap between the genders has narrowed somewhat in the last few years. In 2023, 68% of women are saving for retirement (compared with 77% of men). While in 2019, 66% of women were saving for post-work life, compared with 82% of men.

Further action is needed to close the remaining gap. While everyone needs to prepare for retirement, a range of factors make it even more urgent for woman than for men. 

“Women tend to outlive men, under-earn men, spend more time outside the workforce caring for others, and invest more conservatively than men, all of which put more demands on what a retirement portfolio must deliver to be successful,” says Angela Dorsey, CFP, MBA Founder of Dorsey Wealth Management.

Moving in and out of the workforce can have pernicious consequences.  

“They are less likely to have access to an employer-sponsored retirement plan,” says Marguerita Cheng, Founder of Blue Ocean Global Wealth.

For partnered female clients, Cheng says she advises clients on the benefits of a spousal IRA or Roth IRA, which can help make up the gap in savings. 

“For individuals who are self-employed, I also work with clients and their tax advisors to implement a small business retirement plan (SEP IRA, SIMPLE IRA, SINGLE K),” Cheng adds.

An Aggressive Touch

Part of the problem could be conservative portfolio allocation. Women could be losing out from an under-exposure to stocks and high-risk, high-growth assets. 

“Too many women like to have their money in cash and CDs,” says Dorsey. “This has been my experience with my female clients, where I must continuously educate them about the risks and rewards of investing more aggressively.”

“Women need … a well-diversified portfolio with an appropriate amount of equities so that their investments will grow to a sufficient amount to support a successful retirement,” she adds.

For most workers, it pays to be deep in stocks early to mid-career. Volatile equities typically deliver higher growth when held over the long term, and at age 30 or 40, the average worker has decades to recover if a market crash cuts their portfolio in half. A defensive pivot makes sense as retirement comes into view, usually involving an increased allocation of bonds, gold and other wealth-preserving assets.

Wealth for Health

Its no secret healthcare costs for retirees are rising fast.

By some estimates, a 65-year-old retiring in 2023 can expect to spend an average of $157,500 in medical costs over a roughly two-decade retirement. In 2002, that figure was $80,000, almost half the total sum.

Healthcare is highly personal, and budgeting must take an individual’s needs into account.

“In my practice, we guide our female clients in building a more accurate picture of healthcare expenses in retirement. This involves considering factors such as long-term care, Medicare gaps, and the potential for chronic conditions, “says Christopher Clepp, President at Building Towards Wealth. “By building these costs into their retirement strategy early on, we aim to reduce the stress and uncertainty that comes with healthcare planning.”

Raising awareness of the retirement gap and its hidden causes is paramount. By shining a light on the pernicious injustices of the pay gap and other gender-based hurdles, more can be done to seek justice for women’s retirement. Also, by taking more active steps to prepare for retirement at an earlier age, individual women can do their part to turn the tide and take the initiative to forge their financial future, either alone or with the support of experienced financial professionals. 

Find a Financial Advisor

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Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.