What the Pay Gap Means for Women’s Retirement

Round tableApril 14, 2016 – By now, you’ve probably already heard about the gender pay gap- the disparity in earnings between men and women that, despite national initiatives, laws, advocacy and widespread awareness, stubbornly refuses to close.  In fact, the pay gap has even been making headline news. At the end of March, the U.S. women’s national soccer team filed a federal complaint accusing the U.S. Soccer Federation of pay discrimination, pointing out that female players make about 40 percent of what male ones do.  And in his 2014 State of the Union address, President Obama highlighted the pay gap acknowledging the current average of 80 cents for every dollar men earn. He said closing the gap is a national priority, stating, “A woman deserves equal pay for equal work.”

What you might not know is that the gender wage gap isn’t just about fairness or getting women the money they deserve—although those things are extremely important. A lesser known consequence is the “retirement wage gap,” when the lesser pay that women receive for equal work translates into less money in retirement.

Former Congressional Representative Pat Schroeder summed up the problem decades ago in what is still an accurate assessment:  “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.”

According to a report from Third Way, “What’s Holding Women Back from Equal Pay?”, the average earnings for a man in 2014 totaled $50,383; for a woman that number was $39,621. Since retirement benefits are based on the accumulation of lifetime earnings, it’s unsurprising that by the time women reach age 65, they are more than twice as likely to be poor as men. It’s also unsurprising that the pay gap puts women at a significant disadvantage when it comes to saving for retirement. This disadvantage is compounded by the fact that women in America live, on average, about three years longer than men do, meaning they’ll need even more savings to live comfortably through their final years.

Employment patterns of women compared to men are one reason the pay gap exists. Women are more likely to work in low earning, service, part-time, and non-union jobs. In fact, according to Third Way, 26 of the top 30 earning jobs, including chief executives, dentists and lawyers, are male dominated, whereas 23 of the 30 lowest earning jobs, including cashiers and fast food workers, are female dominated. Low earning jobs are less likely to offer retirement benefits, and also offer women less ability to save.

Furthermore, women are more likely than men to take time off of work for family caregiving, either for an elderly relative or for children. That time off is time that women are not earning retirement benefits or Social Security credits, and less money earned means less that can be put into savings. A National Alliance for Caregiving study showed that caregivers lost $303,880 in wages and Social Security benefits and private pensions over their lifetime. According to the Third Way, “a study by Professor Michelle Budig of the University of Massachusetts at Amherst found that women who return to the labor force after having children face a wage penalty of 4% per child that cannot be explained by other factors. Working men with children, however, experience a “fatherhood bonus” of 6%, regardless of the size of their brood.”

There are a number of ideas about how to close the retirement gap, including making childcare more affordable and providing caregiver credits under the Social Security system.  Achieving this important goal is not only vital to our economy but also to ensuring that millions of women can retire with security and dignity.

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