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Women and Retirement: Facing Unique ChallengesAn ICMA-RC White Paper Retirement saving in the U.S. is a national issue that cuts across race, gender and income lines. But the reality is women workers face unique challenges that often make it difficult for them to achieve retirement security. In fact, nearly one in three women over age 65 in the U.S. is living at or below the poverty level. One major contributing factor to this crisis is that women continue to be the primary caregivers in our society and are more likely than men to cut back on employment to meet family needs. As a result, women typically work fewer years, on average, than men. These breaks in continuous service impact the ability of women to build retirement assets and to accumulate any defined benefit plan payouts they may receive from an employer. Women are more likely than men to work part-time jobs, which rarely offer any pension or other retirement benefits. Women earn, on average, a lower wage than men - up to a quarter less for similar work. Over a lifetime of employment that can amount to $300,000, according to the Women's Institute for a Secure Retirement. That sum of money could mean the difference between a comfortable retirement and poverty.
A study recently released by the U.S. Department of Labor shows that women make more conservative investments than men, which adds to the problem. Because of that tendency, the rate of return women receive on their portfolios is reduced. As a result, they accumulate less wealth over time. Another issue some women face is insufficient basic knowledge about financial issues. Consequently, they often forgo key retirement safety nets like long-term disability insurance or annuities for no better reason than they don't know about them or don't understand them. Statistics confirm just how lean finances for women in retirement can be. According to a study by the Economic Policy Institute, in 2001 the average single woman over age 65 had retirement benefits of just $28,800, while a single man had $81,600. A married couple had $162,000. According to a report issued by the Women's Institute for a Secure Retirement, less than one in five women age 65 and older had a pension. The average annual income from a pension for women was $4,164 in 2004. Overall, the median income in 2004 for retired women was $12,080, compared to men's income of $21,102.
While Social Security benefits are considered to be gender neutral, lower overall earnings still have an impact on women, who collect an average monthly benefit of $826. Men, by comparison, receive an average $1,076, according to the Social Security Administration. Finding a Solution Financial experts agree that to have an impact on the broad range of issues confronting women in retirement, changes in legislation, practice, and procedure should focus on three key areas:
Expanding Retirement Programs Among the most important of the expansion issues is to get more women to participate in tax-advantaged employer-sponsored plans. One proposal would offer employers incentives to include part-time employees in retirement plans. Under existing law, employers can exclude part-time employees who work fewer than 1,000 hours annually from defined contribution plans offered to full-time employees. Those rules could be changed to include part-time workers who work 1,000 hours every year after they've completed one full year of work or 500 hours after three years of employment. These employees would qualify for benefits and the opportunity to get employer matches for contributions, for instance. One provision of the Women's Retirement Security Act would enhance savings in Individual Retirement Accounts (IRA). Employers who do not sponsor a qualified retirement plan would be required to permit employees to contribute a portion of their income to an individual retirement account (IRA) established either by the employee or for the employee. Studies conducted by the Employee Benefit Research Institute show automatic enrollment helps boost participation and that employees in a plan are more likely to contribute than workers who must enroll first before contributing.
Another promising provision of the "Women's Retirement Security Act" would alter existing Flexible Spending Account rules so that up to $500 of money set aside for this purpose and not used for qualified expenses such as health care costs would instead be deposited in a defined contribution plan or IRA.. Additional make-up provisions for women only would allow them to save more in IRAs and use payroll deductions to encourage their use. A related change would create an IRA-like investment in which employees could set aside money on a tax-deferred basis that could be drawn as income while they take leave from the workforce to raise children or care for family members, for example. This provision would have a more significant impact on women, who typically assume this role in the family. The Saver's Credit, a tax credit for qualified low and moderate income workers who contribute to IRAs and workplace plans, would be altered to allow workers to claim a larger credit without first having to pay taxes. The new law would also require that the credit be deposited into a qualified retirement savings account. Safeguarding Retirement Assets Individuals could be given tax incentives to purchase long-term care insurance. Currently, 80 percent of women have not purchased long-term care insurance, despite the fact that because of their longer life spans, one in four will need long-term care at least once in their lives. Enhancing Education Opportunities Improved decision-making among women could result from requiring married couples to take courses focused on retirement options. The learning sessions could be offered when couples elect retirement benefit coverage and when the pension holder nears retirement. One topic the sessions might cover is the difference between life-only annuities and joint and survivor benefits -differences that could mean security for a surviving spouse or financial devastation. Conclusion The Women's Institute for a Secure Retirement (www.wiser.heinz.org) offers a wide range of information and data on the financial needs of older women. The Center for Retirement Research at Boston College (www.bc.edu/crr) is a source of information on many aspects of retirement for both men and women. ICMA-RC on its Web site (www.icmarc.org) offers a comprehensive set of learning tools and financial calculators to help all investors build retirement security. |
