Retirement savings: Three ways women are closing the gap

Women are making great strides in closing gender gaps, but several still exist, including how much women are saving for retirement and the concern they have for their financial futures.

The RBC Wealth Management Wealth Transfer Report: Lasting Legacy suggests high-net-worth women feel less secure about their future finances than their male counterparts. Nearly a third (27 percent) of high-net-worth female respondents indicated they don’t feel they have enough wealth to give it away gradually as they age, compared to only 18 percent of male respondents. The report surveyed 1,752 high-net-worth females, each worth $4.4 million on average, across the U.S., Canada and the UK.

The retirement savings gap is a reality, says Angie O’Leary, head of Wealth Planning at RBC Wealth Management–U.S. While women are actively saving more of their income, several factors affect the actual savings they can accumulate by the time they retire, causing them to feel unprepared to meet the long-term costs of retirement.

Addressing the gaps

Women still make less (on average) than men, although the disparity is shrinking. In 1985, women made 68 cents for every dollar earned by men, but in 2020 that number increased to 83 cents on the dollar, according to data from the U.S. Census Bureau. 

While that’s good news, providing women with more income to control, spend and save, the reality is women still build up less in retirement savings and Social Security benefits than men, O’Leary says.

Additionally, the nature of their work can also impact their ability to save for retirement. According to a report from Pew Charitable Trusts that examined employer-based retirement plans and participation rates between men and women. 26.5 percent of employed women reported usually working part time, around twice the rate for men. Typically, part-time workers do not have access to retirement savings programs offered by employers.

The single life

Another factor contributing to the savings gap is that single women now outnumber married women, with 37 percent of American women aged 65 and over living alone, compared to 13 percent of men, according to Pew.

“As women become increasingly single,” says O’Leary, “they don’t have the same economic benefit of shared household expenses and shared investments.”

And according to the U.S. Centers for Disease Control, women live an average of five years longer than men. Consequentially, their money must last longer too.

So, what can women do to close the retirement savings gap?

1. Find ways to accelerate savings

While saving early is always a great mantra to follow, what happens if you’re 45 and the “saving-early” window is already behind you? O’Leary recommends considering a Roth 401(k) or IRA, which provide tax-deferred savings and tax-free withdrawals.

These accounts are different from the traditional IRA or 401(k), which provide tax-free contributions and deferrals, but provide taxable income upon withdrawal.

“For those individuals that can forego the current tax advantage of a 401(k) or IRA, the long-term benefits of a Roth are an advantage,” O’Leary says.

While there are some income limits to a Roth account, she says, it’s certainly worth considering for at least a portion of retirement savings.

O’Leary also suggests accelerating savings at age 50+, once major expenses such as a child’s college tuition are behind you. “These are peak earning years with fewer expenses. We need to take advantage of them,” she says.

2. Think long-term

It’s important to think long-term, says O’Leary, and not just into the first few years of retirement. Women need to create a plan extending well into their later years.

O’Leary has two suggestions for long-term saving and investing. The first is married women should take an active role in their family’s finances, and insist on meeting with the family financial advisor at least annually.

The second is to have a comprehensive wealth plan that addresses the key risks in retirement.

“The right wealth planning tools can help clients better understand how to make their resources last,” says O’Leary.

3. Plan for future health care costs

It’s also crucial for women to plan ahead for health care costs, especially long-term care, says O’Leary.

“I suggest clients think about how they are going to fund their health care costs and consider the pros and cons of each option,” she adds.

Between personal savings, spending down assets, depending on family, or relying on insurance and Medicare, the right option isn’t always obvious. This is where speaking with a financial advisor becomes a critical step.

One additional way to prepare for the future costs of long-term care is to save in a Health Savings Account (HSA) plan—an individual savings account associated with a high-deductible health insurance plan.

“An HSA is a great way to accumulate and save for health care in retirement. It has a triple tax benefit: you contribute with pre-tax dollars, which reduces your current income; it grows tax deferred, and when used for qualified health care expenses, it is tax-free.” explains O’Leary.

When it comes to their future finances, will women eventually save as much as men? “That’s a tough one,” says O’Leary. “The hope is the gap will continue to narrow, but until there is gender parity across many factors (pay, promotions, caregiving support), there will likely continue to be a gap.”

In the end, it will come down to planning—planning for the extra years as well as the related expenses women tend to have in retirement.

“There are some things that are beyond our control. So to close the gap, we need to appropriately manage the factors that are within our reach,” says O’Leary.