Your Financial Future:
The Pay Gap's Connected To The Retirement Gap
Download as a PDF (which includes footnotes and table, "Who Receives Income from Retirement Plans or Employer Pensions")
Most people are familiar with the well-known "gender wage gap," men out-earning women an average 22 cents on the dollar. But it is less well known how the lack of pay equity eventually translates into a "retirement wage gap" that helps to push up the poverty rate for older women.
In every age group, women have lower incomes than men do, but the gap is especially pronounced at retirement. In 2013, the median annual income of older women was $19,043; for men the same age, $32,572. This is a difference of over $13,000 annually. No surprise, since retirement benefits are based on the accumulation of lifetime earnings - according to data from the Census Bureau, by the time women reach age 65 and older, they are more than twice as likely to be poor as older men (12 percent versus 5.7 percent).
Retirement income is supposed to come from three separate sources: your Social Security benefit, a pension or retirement plan from work, and your individual savings. Yet today's older women do not have much income from either pensions or savings, and while women have increasingly entered the workforce over the last twenty five years, their lower earnings leave them with few resources to invest.
Women need to save more for retirement than men do because they can expect to live about three years longer than men. Also, they need to begin to save early because their income does not increase as much as men's. As of 2012, one year after graduating from college, women were earning 93 percent as much as their male counterparts, but 10 years after graduation, they dropped to earning only 69 percent of what the men earned.
How else do women get short-changed by the retirement system?
Women are concentrated in low-wage, service, part-time, non-union and small firm jobs, where pensions and employer-sponsored retirement plans are less likely to be offered. If a woman works full time, has higher earnings, and her employer offers a retirement plan, she's as likely as a man is to participate in it. But the participation rate of all working women is lower than the participation rate of all working men.
Women are twice as likely as men to work part-time, which means lower wages, fewer opportunities for promotion, a lower likelihood of pension coverage and eventually smaller benefits. In 2014, almost 39 million women were paid hourly wages, and about 5 percent of women who were paid hourly rates had wages at or below the federal minimum, compared with about 3 percent of men.
WISER's booklet, "Financial Steps for Caregivers: What You Need to Know About Protecting Your Money and Retirement" (2014) states that 61% of the caregivers in the U.S. are female. The nation's retirement system does not account for the caregiving roles that women take on that eventually cause them to receive smaller benefits. The average woman takes 12 years out of the workforce for family caregiving.
These factors eventually translate into severe financial problems at a time when women find that their health is beginning to deteriorate, and they are most in need of "retirement" income. In fact, many older women find that they are often forced to continue to work long past the normal retirement age of 65 or have to return to work during "retirement" to make ends meet.
As former Congressional Representative Pat Schroeder liked to remark when speaking about pay discrimination, "the pay discrimination and injustice that women endure throughout their working lives come full circle when they get older - and it strikes its cruelest blow at retirement age when women realize that after a lifetime of hard work and struggling, they are left with very little to live on."
What Can Women Do?
Ask Questions: One of the key aspects of retirement planning is to start early. Financial experts advise that when you get that first paycheck, you need to start saving slowly but steadily and of course, keep those funds for retirement-not for other emergencies. While that may not always sound easy, in order to save money, you have to earn money and put yourself first.
Although only half the working population has pension coverage, women especially need to get answers to a few simple questions now, so they are not surprised when they leave their jobs or when they retire. They need to learn how to benefit from the retirement plan system. Find out what types of plans are available and make sure that to take advantage of any employer matching funds. Learn what mutual funds offer individual retirement accounts with low administrative expenses, and learn about opportunities for tax breaks.
Pay Equity Checklist - What Women Can Do!
- Evaluate what contributions you make to your employer, what skills you provide, and assess their value to your employer.
- Consult trade journals, job postings, or Department of Labor wage information to get a sense of the salary ranges for someone with your qualifications in a similar job.
- Ask your supervisor and your colleagues what kind of skills and training you would need to move into a better paying job in your company.
- Network with people outside your company to learn about other job opportunities, essential skills and training, and salaries for comparable positions.
- Look for training, special projects, and other ways to build your skills that could lead to a better paying job.
- Pursue job opportunities with your current employer or with other firms.