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3 Retirement-Planning Obstacles Women Face

The gender pay gap, risk aversion, and short-term focus

Jake Spiegel


Planning for a secure retirement is no easy task, but it can be particularly challenging for female investors.

There are a number of different reasons. Women often outlive male partners. They are not always constant participants in the labor market, occasionally leaving the workforce to raise children or to care for elderly relatives. And the gender pay gap persists—women earn about 81% as much as their male counterparts, according to the Bureau of Labor Statistics.

In short, women tend to have more obstacles in their path to retirement than men. To explore the extent to which women successfully navigate them, we looked at the Federal Reserve’s Survey of Consumer Finances. Because of the way the survey designates heads of household, households headed by women comprise single women or same-sex female couples, while households headed by men include mixed-sex couples (as well as single men and same-sex male couples). Also, for this analysis we focused on households that were actively investing, such as in a workplace-sponsored retirement account or brokerage account.

3 obstacles women face in retirement planning

  1. Short-term focus: We found that households headed by women tended to have shorter planning horizons when considering savings and investing decisions than investors as a whole. They were focused most strongly on the next few months to the next year, suggesting that these households must attend to more immediate financial needs, such as meeting living expenses and paying down credit card debt, at the expense of planning for retirement. Thirty-nine percent of households headed by women considered saving or investing for the next few months to a year to be their priority, compared to 32% of investors as a whole. Only 31% of these households reported prioritizing the next five to 10 years or 10-plus years in investing decisions, compared to 43% of investors as a whole.

  2. Risk aversion: Households headed by women tended to report an unwillingness to assume investment risk. We found that 36% of such households reported being unwilling to take on any risk at all, compared to 25% of all investors. Only 19% of households headed by women reported a willingness to take on above-average investment risk, compared with 24% of all investors.

  3. Gender pay gap: This hesitation to take risk may be a reflection of the gender pay gap between men and women. Households headed by women typically earn less than those headed by men and may feel that they are less able to weather economic downturns. In turn, this may lead to a conservative approach to investing. That said, this risk aversion can be counterproductive. Assuming an appropriate amount of risk is a necessary part of retirement planning. Investors are less likely to meet their retirement income goals if they don’t take on any investment risk at all, which introduces an entirely new risk—the risk that they will outlive their savings in retirement.

Factors jeopardizing women’s retirement security

Women’s circumstances include planning for the contingency that they live longer in retirement and outlive their partners. They need to save more than men. Unfortunately, in a median regression model, we found that a household headed by a woman has saved around $8,000 less in its retirement accounts than a male-headed household, after controlling for the effects of age and income.

Many factors affect retirement savings, such as debt burdens and disposable income. However, this analysis suggests that women are not deriving the same benefits from the defined-contribution system as men are. By prioritizing shorter-term financial goals over long-term retirement savings when making saving and investment decisions, women are jeopardizing their retirement security. By hesitating to assume an appropriate amount of investment risk, they take on the risk that they will outlive their retirement savings.

This compounds the difficulties women already face in saving for retirement, such as the gender pay gap, inconsistent labor force participation, and the chance that they will outlive their partners. Women must carefully consider these obstacles when making investment decisions and planning for retirement.

This blog post is adapted from an article that originally appeared in the April/May 2017 issue of Morningstar magazine. Read the full article.

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