The gender pay gap has garnered all sorts of media and legislative attention, prompting marches, committee hearings and petitions to Washington. There is even an Equal Pay Day (it was April 8 this year) to mark how far into the new year females must work to earn as much as men did the previous year. While the gender pay gap is a real phenomenon, it has overshadowed another inequality that has the same potential to threaten the long-term financial stability of women: the glaring gender gap in retirement savings. A 2013 report from the Employee Benefit Research Institute, based on 2011 numbers, found the average IRA owned by a man had a balance of $114,745 while the average balance for a woman was $66,529. At age 70, median balances were $72,971 for men and $42,926 for women. While this gap is troubling on its face, financial advisers say there are also several reasons why women need to save more aggressively than their male counterparts. Here are five of them.
1. Women often have fewer years in the workforce"Many women don't earn as much as men and often end up working less because they take time off to have children at some point during their careers," says Douglas Goldstein, a certified financial planner and author of "Rich as a King: How the Wisdom of Chess Can Make You the Grandmaster of Investing." In fact, a 2013 Pew Research Center study found 27 percent of mothers say they have quit a job to care for a child or family member, compared to 10 percent of fathers. In addition, 49 percent of mothers have reduced their work hours to provide care and 39 percent have taken a significant amount of time off work. Meanwhile, only 28 percent and 24 percent of fathers said the same.
"Many women who take off time to be home with their kids don't think long term and don't fund a private retirement account, such as an IRA," says Goldstein. "This can be a big mistake later on, as their contributions to Social Security are lower, and they may not benefit from the more generous retirement plans offered by full-time employers."
2. Women may be more conservative in their investments"Women have a tendency to be more conservative, sometimes to their determent," says Keith Klein, a certified financial planner and owner of Turning Pointe Wealth Management in Phoenix. While conservative investing can keep money safe, it may also mean women don't earn high enough returns to build a comfortable nest egg. However, it's not all bad news for women. Klein says the conservative approach also means women tend to ask more questions and be more likely to stick with their investment decisions, which can be a good thing in a tumultuous market environment. "Once women make a decision, they stick with it," says Klein. "They understand the ups and downs of the market and are less likely to react emotionally."
3. Women don't necessarily plan for themselvesWhether it be letting a man make their investment decisions or thinking a husband's Social Security or pension will sustain them, many women make the mistake of not being in charge of their own retirement plans. "It surprises me that even today, after all of the changes in traditional roles, the men still dominate the financial decision-making in most couples I meet," says Goldstein. Klein suggests part of the problem may lie with advisers who assume men are the decision makers. He says women shouldn't be afraid to speak up during investment discussions and that women are involved in more than 60 percent of the decisions made by his clients.
"Women shouldn't feel like a burden asking questions," he says. "If they do, they should look for a new adviser."