The cost of being a woman can now be quantified into one terrifying statistic: women are 80 percent more likely to be impoverished at age 65 than men. That’s according to this report from the National Institute on Retirement Security. How have we arrived at a time when our mothers, grandmothers, sisters, and friends are facing a future of geriatric poverty? I’m not suggesting there’s a simple answer, but one thing is clear: The current retirement savings system isn’t working for many women.
This current system requires that you have access to a workplace retirement savings plan like a 401(k). These retirement plans can be very effective because they allow high rates of savings, provide matching contributions from employers, diverse investment options and most importantly a structured retirement savings environment.
However, 75 million people don’t have access to these workplace retirement savings plans — and the majority of those people are women.
This is a massive problem. Without access to a workplace retirement plan, only a fraction of Americans will set up a retirement plan like an individual retirement account or individual 401k on their own.
And here’s why.
Self directed IRA’s and other retirement savings plans essentially require that you become your own pension manager, something few have the skills to do. Think about it: you must construct a retirement plan, select your investments, allocate your assets, and implement your own diversification strategy for over forty years.
Overwhelmed? You’re not alone.
This is not easy for anyone. Both men and women struggle with do-it-yourself investing decisions. But for women — both those who are covered and those who are not — we face additional challenges and barriers around saving money:
- Women earn 79 cents for every dollar men earn.
- Women are more likely than men to take off time from work to raise children, which results in extended periods of no earning, no coverage, and no contributions to IRA’s and 401k’s.
- Women live longer than men (81.2 years versus 76.4 years) which means they require 5 more years of retirement savings.
- Women are more likely than men to have unexpected extraordinary medical costs.
These are just a few of the reasons that we must worry about our financial futures. There are more.
We’re in the middle of a shifting job market — the US is moving away from traditional employment to more independent contractors and “gig workers.” It is estimated that by 2020, as much as 40 percent of the workforce will not have a traditional employee-employer relationship.
And based on current trends, this estimate will soon be the reality.
A recent report from Harvard and Princeton professors shows that all net employment growth in the past decade came from alternative work arrangements, not full-time jobs.
This shifting labor market will further distance women from retirement plan coverage and will worsen their long-term financial security.
A common misconception is that women don’t save enough. But given the chance, they nearly always do.
In fact, Vanguard, one of the retirement savings industry heavyweights, illuminates this point: “When women are given the opportunity to participate in workplace savings plans, they save at higher rates than men at all income levels.”
Knowing that the retirement savings system isn’t working for us, what can we do? We need a new retirement savings plan — one specifically designed for the uncovered workforce.
We need a new retirement planning system that resembles our current 401(k) system, but that that is easy to use, fairly priced, and high quality. Of course, it must also address the simplicity and portability needs of our shifting 21st-century workforce.
Lack of retirement savings is quickly becoming one of the biggest social challenges of our generation with a far-reaching impact on individuals, their families, communities, and our country.
We must look at the retirement savings crisis through the lens of gender because it allows us to start developing and designing retirement savings solutions that address the barriers, and to start to change these unsettling statistics.