Q & A

Why Aren’t Women Saving Enough for Retirement?

Diane Garnick, TIAA’s chief income strategist, says that on average, women don’t accumulate as much in retirement savings as men do. She talked to Yale Insights about why this gap exists, and how women can make up the difference.


The retirement system appears at first glance to be gender neutral, TIAA chief income strategist Diane Garnick writes in a TIAA report issued in 2016. Employers and the firms that manage our retirement accounts create policies and investment vehicles without taking gender into account. But when Garnick took a closer look, she found that because women’s professional and personal lives tend to unfold differently from men’s, the outcomes for women are quite different.

“We live in an era where gender equality is increasingly becoming the norm, but we also happen to live during a time with ample access to the data and tools necessary to draw conclusions,” Garnick writes. “The data enables us to identify the obstacles women face during their savings and retirement phases. The tools enable us to provide the clarity necessary for resolving the problem at hand.”

Garnick talked with Yale Insights about why women often aren’t saving as much as men for retirement—what she has dubbed the “retirement gender gap”—and how employers, governments, and individuals can help make up the difference.

Q: You’ve written that women planning for retirement need to be aware of the “gender retirement gap.” What do you mean?

We know that most people accept the default retirement strategy that their company gives them, but we also know that their company can not ask them the type of questions that are really important about retirement. For example, they can’t ask them, “How long do you think you’re going to live?” or “How much money is your uncle going to give you? What are your expenses in retirement going to be? How much do you think you’re going to save?”

Since these questions cannot be asked in the hiring process, companies use the limited information that is available to them.  As a result, when target-date funds, which are typically the default investment, get designed, they are designed for the average American. But most people are anything but average.

We know that 100% of the people could benefit from a customized strategy, but not many people have one. To test the point, we took the data from people saving for retirement and we cut it just one time—by gender.  Even we were surprised by the results.  What we discovered is  a tremendous difference between the average participant and women in particular.

Let’s say that a man and a woman both graduate from the Yale School of Management, and they each get a great new job (of course they do). They start with the same education, at the same company, at the same pay; their default investment will put them on their way to saving for retirement.

If the man saves 10% of his income, for the woman to have the same amount of savings at the moment of retirement, she literally needs to save 18%—a factor of 1.8.  This difference certainly opened our eyes.

So we did a deeper dive to understand why there is such a big difference, and it really comes down to three different factors during the working years, while women are saving for retirement.

First, women take time out of the workforce. Women initially take time off to take care of their kids. Then they also take time out of the workforce to take care of elder parents. The net result is that women only work about 75% of the years that men work. If your retirement savings is a percentage of your pay, and you are not working, well, you’re saving zero. So right away, that contributes to this higher savings rate that women need. That’s number one.

Second, when women do work, they don’t make as much money as men. They may start out at the same salary, but over time, unfortunately, what we’ve seen is that women don’t make the same as men. In fact, if you look at the U.S. workforce right now, women still only make around 78 cents on the dollar.

Except for professional women, right? Many people believe that because professionals have  all gone to these pay parity courses and  diversity courses  and inclusion courses, the pay difference would be zero. Yet, in spite of all of that, as a professional woman you only make 72 cents on the dollar. So the data gets even bleaker.

Finally, the third factor is that women are much more risk averse. They tend to hold more cash, whereas men hold more stocks and other high-returning, or potentially higher-returning, assets. This means when the market does well the returns that women earn are not as robust.

As a result, women need to save 18% while men save 10%, just to reach the same level of wealth at retirement.

Now, even that figure isn’t quite complete. Women spend a lot more money in retirement than men. Women are not doing things like buying wonderful scarves, jewelry, or going on cruises without the men. That’s not what women are spending the money on.

Women live about two and a half years longer than men, so their expenses extend further into the future. Many women incorrectly think about being the sole providers to their household for two and a half years longer than their spouse. That would only be true if the husband and wife were the same age, which is almost never the case.

We conducted a study looking at the Social Security and LIMRA data and discovered if a husband and wife retire at the same time (the husband at 65 and the wife 63), after the first spouse passes away, the second spouse is likely to live about eight years. But there’s also a very long right tail. Fifteen percent of the ladies are going to live 20 years or more after their spouse dies. So when we talk about spending more money in retirement, you could literally have decades of being the sole provider to your household.

The other issue that we think is equally important is that women spend more money on healthcare in retirement. Women have a tendency to get chronic diseases. They get a cold, and then pneumonia, and then the flu, and that’s very expensive. Similarly, many of the most expensive diseases happen late in life, when the women outnumber men.

I think that’s really important for us to focus on, especially now. It’s 2017, and right now if I were to gather up every person in America over the age of 100, they could replace all of the residents in Youngstown, Ohio. By 2060, with the aging of the baby boomers, we will have enough 100-year-olds to replace every resident in the city of Miami. So there is going to be a lot of demand for healthcare services and assisted living facilities. If they’re not adequately funded, that economic burden is going to pass down to Generation X and Gen Y. Those are the folks who will be responsible for taking care of retired people who can now live many, many years into the future. That’s why retirement security is such an important issue.

Q: At least some of this is a matter of biology, because women live longer. Is it also the result of policy failures?

There are two types of retired people in this world. There are people with defined benefit traditional pension plans. In other words, from the day they retire, they get 90% of their income every month for the rest of their lives and their financial wellness stems from there.

Then there are those of us who are in what I affectionately call the YOYO generation, which stands for “you’re on your own.” The way it works is, you save money in your retirement account, and it’s not taxed now. Instead, it’s taxed when the money comes out.

Unfortunately, under the current retirement system in the U.S., people have access to all of their funds at the moment of retirement. The fear is that people will go out and spend all of their money on luxurious goods and end up running out of money to pay for life’s necessities very quickly.

One of the places that policymakers can make a big difference is helping people convert their savings into a lifetime income stream. This way they not only have the opportunity to take care of themselves, they could become less of a burden to society at large.

A second place where policymakers can make a tremendous difference is to reexamine the tax deferral caps for stay-at-home parents. In the United States retirement savings are tax deferred until the money is withdrawn. When people make the decision to be a stay-at-home parent, which happens quite frequently for women—about 22% of all parents are stay at home parents, and of those, a vast majority are women—the amount of money that they are allowed to put aside each year for retirement drops from $18,000 to $5,500. Well, nothing has changed about your retirement expenses, so there’s no reason that cap shouldn’t be the same whether you’re working or a stay-at-home parent.

Q: Is there a role for employers in solving this problem?

I think a critically important role for companies to play is to stop telling people how much wealth they’ve accumulated and instead tell them if they were to retire at age 65 how much money would they get every month for the rest of their lives. I think that’s incredibly useful when you’re 25, or 35, or 45. At that point you can still make savings decision changes that can have a meaningful impact. If you discover that you only have enough money for $2,000 a month in income, but you’re spending $6,000, you certainly know you need to save more.

Q: You said that women are more risk averse than men when it comes to their retirement. Are men taking the right amount of risk?

It’s hard to tell if we look at the average if each individual man is saving enough, or has enough risk in their portfolio. If it is difficult for those of us who are imbedded in the data every day, imagine how difficult it is for the household who is just trying to save and might not be in finance. It’s nearly impossible for them to discover how well off they are without giving them the right tools or a framework that enables them to actually understand how on track they are.

People would not think about going through an entire year without meeting their physician, and saying, “I’m here for my annual checkup. Confirm that I’m on the right track and that I’m doing okay.” Yet many people don’t sit down at least once a year with a financial advisor and say, “Give me that financial checkup. How am I doing?” If you don’t take a good look at your finances, there’s almost no easy way for corrective action, particularly later on in life. Early detection is the best cure, and it’s the same for retirement savings. When you decide what your goals are, and then check in regularly, you might discover you’re holding too much risk. That annual checkup plays a key role in making sure that you can get to the outcomes you want.

Q: You mentioned that women aren’t taking enough risk. Do you think part of the issue is that people older than 40, say, came of age in a higher-interest rate environment, and they imagine that you can put money away and save it and have it grow?

You’re right that rates are very low right now and likely to stay low for a while. They’re slowly beginning their rise, but the slope of rate increases is much flatter than many people anticipated.

I think you’re right that people are anchored in a higher interest rate. That plays a critically important role.

One of the things that we see is baby boomers not saving as well as the millennials, which raises a lot of eyebrows for people. I would love to say the millennials heard the message of how important saving for retirement is. But if you look back and do a deeper dive, many times it’s because they started their jobs after the Pension Protection Act. One of the big changes in the Pension Protection Act was that when you sit down at a new job and get a stack of papers, the piece of paper that used to say, “Select your retirement options,” now it says, “We have selected your retirement options for you, and if you want us to change them, let us know.” That has encouraged a lot of savings, giving millennials an edge in preparing for retirement.

Chief Income Strategist, TIAA