How to Improve Women's Retirement Savings: Brookings

Social Security Haircut

Due to the reduction in lifetime wages, Social Security benefits are, on average, for women 80% of men's benefits, the paper states, noting that benefits are determined by a worker's 35 highest earning years.

The "motherhood penalty" is applicable here as well. According to the authors, the first child reduces Social Security benefits to women by 16%. Each child thereafter increases the gap by 2%.

Defined Benefit or Contribution Plans

Not working or reduction in working also can lead to lower payouts from defined benefit programs, such as pensions, or defined contribution plans, such as 401(k) plans.

Defined benefit plans typically favor long-term workers — a problem when women step out of the workforce for caregiving. The authors found women are two-thirds less likely to be in a program, and those who are receive one-third less in benefits than their male counterparts.

DC plan accounts can be moved between jobs, and workers' own contributions are immediately vested. That said, Vanguard data showed "that in 2016 the average account balance for women was two-thirds the average for men, but almost all of this difference was the result of wage differences rather than saving behavior given earnings," the authors state.

Women also tend to live longer than men: In 2020, average life expectancy at age 65 is 21.1 years for women and 18.6 years for men, according to the paper. Further, poverty rates among women rise with age, and women who have children are more likely to be poor than those who don't. This isn't true for men, according to the authors.

How to Close the Gap

Policies need to change, Enda and Gale write. Here are their solutions:

1. Working should be made more attractive to women, and this includes implementing "a robust federal paid family and medical leave program [that] would let people save for retirement and earn Social Security credits while providing care to children and relatives." This could be done by assigning a value to caregiving work that would be used as part of Social Security benefit calculations.
2. High-quality child care should be subsidized so women can remain in the workforce.
3. Revisions to the tax code "to provide a second-earner tax credit or to tax individuals rather than families would improve incentives for married women to work."
4. Also, as women make up a majority of those in the workforce not covered by an employer-sponsored plan, adoption of a nationwide automatic IRA program could make them "eligible to participate in a tax-preferred workplace retirement program."
5. Finally, the social safety net must be strengthened, the authors state. "For example, boosting Supplemental Security Income benefits to close the gap between Social Security income and the poverty threshold could lift nearly 5 million elderly people, a majority of whom are women, out of poverty."

Also, increasing support from Medicare and Medicaid for end-of-life care could help widows. In addition, the authors suggest, there should be a reexamination and reform of divorce laws that could help women be more adequately prepared to meet their own financial needs.

— Related on ThinkAdvisor:

• Married Women Have an Edge in Retirement Planning: EBRI
• How Advisors Can Connect With Female Boomers, Gen Xers and Millennials
• What Divorced Women Should Know About Claiming Social Security