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Missed Opportunities

Despite good intentions, retirement plans fail to meet women’s unique needs.

Sue Watt, 04/10/2017

Retirement policy and benefit changes across the globe have shifted the burden to save and invest onto the shoulders of individuals. This burden is particularly onerous to women, who are more likely to take breaks from the workforce and are paid lower salaries while they work, and therefore are less able to save for retirement. Women also live longer than men.

These circumstances keep women from accessing many workplace benefits—women’s retirement needs weren’t necessarily much better served by the defined-benefit pension system of the past than they are today by defined-contribution plans, like 401(k) plans. However, in the move to defined-contribution plans, governments and plan sponsors are missing the opportunity to address the challenges that women face.

The United States, the United Kingdom, and Japan, three major markets at different stages of defined-contribution-plan development and uptake, demonstrate that good intentions have failed to meet women’s unique needs.

Retirement Costs Women More Because of Longevity…
Women need to plan for a longer retirement period than men. Women’s life expectancy, on average, will continue to be three to five years longer than that for men for decades to come. Although the gap is narrowing in the U.K. and the U.S., it is widening in Japan ( EXHIBIT 1 ). The cost of those extra years in retirement is remarkable. This is mostly owed to healthcare expenses, which can be up to 20% higher for women than men in the U.S. due to longevity, according to a 2016 healthcare costs report by HealthView Services.

… And Women Face More Retirement Funding Obstacles
Women are less able to amass needed savings within defined-contribution plans because they are more likely than men to leave the workforce intermittently. As EXHIBIT 2 shows, men have higher labor participation rates across the board. Meanwhile, women in all three countries have lower participation rates at almost every age.

Women are also more likely to hold lower-wage and part-time jobs, which affects both current and future income. Women across all age bands in the U.S. have less income than their male counterparts, and that differential tends to widen in retirement. For example, at age 65 and older, the average income for women is 25% lower than for men, according to a study by the National Institute on Retirement Security; for women 80 and older, their income is fully 30% lower than that of their male counterparts. Much of that disparity comes from lower Social Security benefits. As a result, women older than age 65 are 80% more likely to live in poverty than men (9% of women over age 65 live in poverty; 5% of men do).1

In Shift to DC, Women Are Still Left Behind
In short, women face higher costs in retirement because they live longer, but have lower savings. These issues aren’t new, but defined-contribution plans continue to fail to address them.

Sue Watt is vice president, global retirement strategy, with Morningstar.

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