Gender Retirement Savings Gap Highlights Need for Workplace Savings Policies That Cover All Workers

This is the third blog in the ‘Savings and the Economy’ blog series which provides data-driven insights on implications of economic uncertainty for household savings and financial wellbeing.

The gender retirement savings gap is a severe problem facing the US retirement system, requiring a fresh look at workplace policies that are inclusive of the social and economic realities facing women. In 2021, nearly 20 percent of women, compared to 12 percent of men, had less than $10,000 in retirement savings, and 28 percent more women than men had less than $50,000 in retirement savings. [1]

These troubling statistics underscore concerns that systemic barriers prevent women from saving for retirement. The gender pay gap, women’s workforce trajectories that are often interrupted by caregiving, and growth in female labor force participation in the gig economy are all contributing factors. Coupled with women’s longer life spans, women’s lower retirement savings rates are a pressing policy challenge that needs to be addressed.

Barriers to women’s retirement savings: lack of access and low participation

Over half of all women indicate being anxious about retiring without adequate savings. However, the intent to save for retirement can often fail to translate into actual savings if women have lower access to and participation rates in both workplace retirement savings programs, such as a 401(k), and retirement savings vehicles outside the workplace, such as an Individual Retirement Account (IRA), than their male counterparts.

Workplace retirement savings programs, funded through payroll deductions, are an easy way for workers to save for retirement. Yet access to workplace retirement programs is not a given. AARP research shows that nearly 49 percent of women lack access to a workplace retirement savings program. This places them at a double disadvantage to save for retirement because of the loss of tax benefits and matching contributions from employers that are tied to a workplace retirement savings program in addition to lower saving balances that result from foregone compound interest.

Even when employees have access to workplace savings programs, a lack of incentives dampens participation. For instance, research shows that employer-matched 401(k) contributions improve employee participation, however, not all employers provide matching contributions. Such incentives are especially vital in today’s economic environment of high inflation in which families struggling to manage everyday expenses may be unable to set money aside to save for retirement. Provisions under the Secure 2.0 law enacted in December 2022, which allows employers to provide matching contributions for student loan repayments, are an important step towards bridging the gender retirement savings gap. Women are not only 35 percent more likely than men to have student loans, but 37 percent more women have $25,000 to over $100,000 in student loan debt. 

Workplace retirement programs are only part of the retirement savings landscape. Retirement savings vehicles outside the workplace, like an IRA, attract even lower participation rates among women. Nearly 79 percent of women do not have an IRA, as per data from 2014 to 2021, and the share of women with IRAs declined steeply from close to 33 percent in 2014 to 7 percent in 2020. It rose lightly to 9 percent in 2021, but women’s IRA participation rates remain well below pre-pandemic levels.

Economic disadvantages reduce women’s retirement savings

Women also face economic  disadvantages that inhibit their abilities to save for retirement. They earn less, are more likely to work part-time or participate in the gig economy, and struggle more with unexpected financial emergencies than men. Additionally, caregiving responsibilities, which have typically fallen to women, have a direct bearing on women’s labor market participation, tenure in the workforce and subsequently their ability to save for retirement. Women with caregiving responsibilities may need to remain outside the labor force or take up part-time jobs or temporary work, all of which lower their retirement savings. Even when they do participate in the labor force, women with shorter tenures encounter tenure-based eligibility and vesting rules that reduce their ability to participate in and benefit from workplace retirement savings programs.        

Given retirement savings are typically based on a percentage of earnings, women are already at a disadvantage because of the gap in wages between men and women. According to Department of Labor estimates, women in full-time, year-round employment are paid 83.7 percent of what men are paid, and the gender earnings gap is even more acute for older women. Women between the ages of 45 to 54 earn, on average, 79 percent of male earnings; between 55 and 64, women earn only 77 percent of what men earn; and the earnings gap is highest for women above 65 years, who earn a mere 73 percent of what their male counterparts earn. As the workforce ages, the gender earnings gap, which increases as women age, points to a troubling trend given the existing inadequacy of retirement savings among women.  These gender disparities in earnings have implications for women’s ability to save for retirement as they approach retirement and for their income sufficiency during retirement years.

Women are also nearly twice as likely as men to be employed in part-time jobs and the female part-time labor force has been on the rise over the past three decades. In 2022, 23 percent of women worked part-time compared to 11 percent of men. Among racial groups, the gig economy is disproportionately affecting Black and Hispanic women who are not only more likely to be engaged in gig-work as a means to supplement income from their primary job but doing so out of necessity rather than by choice.

Additionally, women are 20 percent less likely than men to have an emergency or rainy-day fund to cover expenses for three months in case of income or job loss. More worryingly, women pay an astounding 53 percent more than men in out-of-pocket costs from unexpected medical emergencies. During the pandemic, Black and Hispanic women, who are already at a higher disadvantage in saving for retirement, were more likely than other groups to borrow or cash out from their retirement account to meet more immediate household needs. The lack of emergency savings to tide over immediate financial needs are a setback to women’s ability to save for  retirement.

Policy solutions: inclusive workplace savings policies

Advancing workplace policies that make it easier for women to access, participate, and save for retirement are an important starting point to help women achieve financial wellbeing before and during their retirement years. Expanding access and participation for part-time workers and gig workers will help improve retirement security for all workers, and particularly women. In the wake of the Covid-19 pandemic, as more women re-enter the workforce through part-time, temporary, and gig work, these workforce arrangements should no longer be a barrier to their ability to save for retirement. But there remains low uptake among employers to allow part-time and gig economy workers to participate in workplace retirement savings programs.

Other policy interventions, such as state facilitated Auto IRA programs,  offer an important step forward in addressing the gender retirement savings gap. Auto IRA programs not only include provisions that cover part-time and gig workers in workplace savings plans, but also have made it easier for small businesses to offer workplace savings programs. Federal and state supports to reduce administrative costs that employers may incur when providing workplace savings programs will further aid in expanding women’s access to and participation rates in workplace retirement savings plans. Federal programs like the Savers Credit (which will be replaced by a federal matching contribution in 2027) can also encourage savings and boost account balances.

Workplace plans with features like the employer match, retirement-linked or stand-alone emergency savings accounts, auto-enrollment, and payroll deduction help women build long- and short-term retirement security. Such efforts should be coupled with workplace policies that support women’s caregiving responsibilities, further wage transparency, advance pay parity, and expand health insurance coverage, all of which help women meet the needs of their families. A holistic approach that is inclusive and improves financial wellbeing is essential to address the gender savings gap. 

[1] Authors tabulation of data from the Survey of Economic and Financial Decision Making (SHED), Federal Reserve Board of Governors