Despite the great strides women have made to achieve equality in the workplace, financial injustice persists. While many headlines highlight the disparity in earning power between men and women, other, less visible imbalances require more scrutiny.
A new study from Bank of America has found men, on average, have 50% more in retirement savings than women. The average sum of an American male's 401(k) account is $89,000, while for females, it is $59,000.
While the gap is most significant among older generations –87% and 53% between Boomers and Gen X, respectively– the gap is narrowing among younger generations. Among Millennials, for instance, women's savings trail their male counterparts by around 23%.
The strides young female employees are making are encouraging, noted BofA analysts in the new report. Yet there is much more that needs to be done.
Female financial advisors share their insights into the issue and what women can do to ensure they are empowered to accrue the funds needed to enjoy a financially secure retirement.
Pay Back Time?
Despite advocacy efforts, income justice for women has remained elusive since the turn of the millennium.
In 2022, women earned an average of 82% of what men earned, according to a Pew Research Center analysis of median hourly earnings of both full- and part-time workers. Progress on the issue has been woeful – Pew reports that women made 80% as much as men in 2002, equating to a 2% improvement over two decades.
It stands to reason that if women are paid less, their 401(k) contributions will amount to less. Yet that is far from the whole story. The persistent pay gap can breed other pernicious effects.
“It becomes a negative feedback loop, women earn less than their spouses, so they are the ones to take time off to care for children or aging parents, then because they took time off, they continue to earn less than their spouse,” says Alicia Vande Ven, Financial Advisor at Walkner Condon Financial Advisors.
“The conversation goes, ‘well, you should stay home because you make less money than me,' but then women continue to make less money because they stay home.”
There are factors beyond the pay gap, though.
Angela Dorsey, the founder of Dorsey Wealth Management, is a female advisor focused on helping women retire. Dorsey points to women's more conservative investing style and the disproportionate amount of time they spend outside of the workforce as causes.
Despite forward financial planning by women, childbirth can still majorly interrupt women's careers, and the impact extends far beyond maternity leave. Although fathers are becoming more involved at home than in the past, mothers remain the primary caregivers in the US today.
According to Pew Research, in 2021, around a quarter of mothers (26%) were not employed for pay (stay-at-home mothers). Just 7% of fathers, by comparison, were stay-at-home dads. The trend lines between genders have converged slightly over time, but not by much. (In 1989, the share of fathers who were not employed for pay was just 4%, while for mothers, it was 28%).
“When women are out of the workforce, even for a short period of time, it has long-term consequences for their retirement savings,” says Vande Ven. “Not only are they just not saving during the time they aren't working, they aren't getting raises and promotions that allow them to continue to increase those savings over time.”
If family demands require one spouse to be at home, some mechanisms can help the breadwinner save for their spouse.
“A stay-at-home parent can benefit from a spousal IRA where the working partner deposits the max for the partner who is not working,” says Diana Gisel Yáñez, financial planner and founder of All the Colors. “In addition to preparing the non-working partner for retirement, this also can reduce the overall tax burden for the household.”
Dorsey cites factors that make retirement savings even more critical for the average woman. These include needing a more significant nest egg to cover a longer lifespan and a tendency to divert more resources toward others' long-term care expenses rather than their own.
There are steps women can take to buck the trend toward having half as much in retirement savings as men.
“The first step for women to begin closing the gap is to stop shying away from money topics and learn about investing,” Dorsey advises. “Women tend to have more cash and fixed income in their portfolios and lack the confidence to invest more aggressively.”
“Contribute as much as possible to a 401k plan,” she adds. “Outside of the employer's plan, consider your eligibility to contribute to IRAs and Roth IRA accounts.”
Other advisors urge women to get on the front foot and get what they deserve from their employers.
“It is very important that women know what the pay standards are for their industry and that they learn how to negotiate,” says Yáñez. Sometimes flexibility at work can mean more to someone than higher wages – just keep in mind that you cannot save for retirement money that you do not earn.”
While hopeful progress is visible among younger generations, the large gap in retirement savings continues to erode women's financial security. Closing this gap requires concerted efforts both at a societal and individual level.
By focusing on awareness around money, prioritizing investment, negotiating fair pay, and strategic planning with spouses, women can better position themselves to prosper over the long term. Generating broader awareness of the systemic problem may also help catalyze the change needed to shore up women's financial security across society.