Thinkadvisor.com, March 2, 2016
Women past traditional retirement age have about 25% lower incomes than men in the same age group, according to a March report from the National Institute for Retirement Security. Women receive less from Social Security and have lower account balances in retirement savings plans, the report found. Furthermore, while women are at a distinct disadvantage compared with men, even among women, some demographics are worse off than others.
Lower levels of income, and lower access to and participation in retirement plans, among other factors, contribute to lower overall savings levels for black and Latina women compared both with men and with women overall. The report is based primarily on data from the Survey of Income and Program Participation conducted by the U.S. Census Bureau.
Median household income for women 65 and older was $35,810 in 2013, the report found. Over half of that is from Social Security benefits, and about a quarter is from defined benefit and defined contribution plan savings. Household income for men had a similar distribution but a higher level: of their $48,280 annual income, 47% is from Social Security and 25% is from DB and DC plan savings.
Wages make up a declining share of household income, unsurprisingly, but after age 80 represent 10% of a woman’s household income, compared with 8% of a man’s. A 2015 survey by NIRS found that 41% of women said they needed to work in retirement, compared with 31% of men, to make up for less time in the work force, lower earnings or to make up losses incurred during the recession.
The shortfall in retirement savings among women is happening in spite of greater access to retirement savings plans, the report found. Historically, men were more likely to work for employers who offered a retirement plan, but that trend reversed between 1998 and 2012. Since 2006, women’s participation rates have equaled that of men, but differences in eligibility and pay have made it difficult for women to save as much.
Between 1998 and 2012, when more women than men worked for employers that offered a retirement plan, they were less likely to be eligible to participate: 85% were eligible, compared with 89% of men. For non-white women, the wage gap is especially pronounced. Overall, women earn $0.79 for every dollar earned by men, the report found. However, black women earn only 60% of what men earn, and Latina women earn 55%.
Age and experience doesn’t reduce the wage gap, the paper found, referring to data from The American Association of University Women. “In fact, the disparity between the earnings of all women and men grows over time — a 10% gap in median weekly wages between women and men ages 20 to 24 grows to a 23% gap by the age of 55 to 64 for women and men.”
Access is lower among people of color, too, for men and women. A third of Latino men and 35% of Latina women work for employers that offer a DC plan, the lowest in the report. Access for black and Asian workers was closer to that of white workers: 45% for black and Asian men, compared with 48% for white men. Asian women were less likely to have access to a DC plan (43%) than black or white women (46% and 48%, respectively).
For Latino workers in particular, low access and low participation (less than three-quarters of Latinos who are offered a DC plan participate in it) have resulted in just 20% of households having more than $10,000 in retirement savings, according to the report. Among Latina women, median household income after age 65 is $32,480. The report found median household income for black women in that age group was just $31,320. Asian women had the highest income level at $39,380.
Differences in investing style may contribute to better investment returns for women, but there are still challenges, according to the report. Data from Fidelity Investments shows that women tend to have more balanced portfolios with higher allocations to blended assets, and tend to be invested more age appropriately than men. “These factors may allow women to achieve the same or better rates of return than men over time,” the paper noted, referring to a report by finance professors Brad Barber and Terrance Odean that found “female investors had better rates of return than male investors.”
Additionally, data from Vanguard shows women contribute as much or more of their salary than men. With a lower pay rate, though, it still results in a shortfall. The median account balance as of the end of 2014, according to Vanguard, was $36,875 for men and $24,446 for women. The average balance for men was $121,201, compared with $78,007.
To Your Successful Retirement!
Michael Ginsberg, JD, CFP®