Saving for the future is a challenge for millions of workers. In fact, the U.S. Government Accountability Office reports that about half of adults 55 years and older have no retirement savings at all. But the shortfall is compounded for women, causing them to face even greater retirement risks than men.
Why is the playing field so uneven? Perhaps the greatest impact is the gender wage gap. Significant pay discrepancies have existed between men and women from the time women first entered the workforce in WWII years. But that was nearly 80 years ago, yet today women still earn about 20 percent less -- $.79 cents on average for every $1.00 earned by men.
A persistent wage gap, like the one working women face today, can cause significant damage to both the security and quality of retirement, beginning with reduced Social Security benefits and pensions. Add to this the fact that women tend to be the ones who take time away from the workplace to care for children or aging loved ones, reducing benefits even further. And women also tend to live longer than men, needing to stretch their retirement savings over a greater period of time.
Understanding what it is that punishes women financially in retirement is a critical first step to finding workable solutions and evaluating those in various stages of the legislative process.
Know the 4 strikes working against the security of your retirement
1. According to the latest data from the Society of Actuaries (SOA), females age 65 will live, on average, slightly more than 2 years longer than men of the same age. Although the pace of mortality improvement has slowed somewhat since 2010, overall longevity for women was 87.61 years in 2018 versus 85.6 for men.
2. The gender wage gap has a domino effect on a woman's entire career. The National Women's Law Center finds that today women need to work nearly ten years longer than their male counterparts to make up the lifetime wage gap. For women of color, that number is even higher. These lost wages severely reduce a woman’s ability to save for retirement and pose a threat to her economic security later in life.
3. Family caregiving causes career interruptions that can have significant monetary consequences over time. Research conducted by AARP revealed that family caregivers who are at least 50 years old and leave the workforce to care for a parent will forgo, on average, $304,000 in salary and benefits over their lifetime. These estimates range from $283,716 for men to $324,044 for women.
4. Research shows that women also receive about a third less income in retirement from defined benefit pension plans and have accumulated about a third fewer assets in defined contribution retirement accounts than their male counterparts.
Legislative solutions at work to expand retirement plan coverage
With the U.S. facing an estimated retirement savings shortfall of $4 trillion, members of Congress are increasingly hearing from constituents that retirement security is a major public-policy issue that needs to be addressed more aggressively. Here’s a recap of some retirement policy changes currently on the legislative drawing board, keeping in mind that such policy matters are complicated and outcomes are impossible to predict. These are a few expected to have the greatest impact on the way people retire.
1. Increasing number of states introducing multiple-employer plans (MEPs)
A growing number of states are launching programs designed for the estimated 32 percent of private-sector workers who lack access to a retirement-savings plan in the workplace. California, Illinois and Oregon now have programs requiring employers without plans to automatically enroll employees in individual retirement accounts which can be offered through a multiple-employer plan. For example, the California Association of Winegrape Growers offers a multiple-employer retirement savings plan to their membership.
At the federal level, Congress is working to pass a measure to expand workers’ access to 401(k) plans by allowing employers with little or no affiliation to team up to offer MEPs. The objective is to encourage small companies, many of which do not currently offer retirement plans, to make them available to employees.
2. Expansion of automatic enrollment gets more people saving
An increasingly available option is expected to have a large impact on retirement savings rates by auto enrolling employees in a plan. Contributions are set at a default rate, such as 3 percent of wages, and allow employees to opt out or change their contribution level if they choose. Auto enrollment not only boosts savings rates, but also helps counter inaction on the part of employees.
As with the adoption of multiple-employer plans, automatic enrollment is gaining legislative traction primarily on the state level with a growing number automatically enrolling private-sector workers in state- or city-wide retirement savings plans.
3. Act wending way through Congress proposes to change existing retirement rules
The Secure Act, designed to expand access to retirement savings with a bevy of changes to existing retirement rules, sailed through the House of Representatives with a resounding 417-3 vote in May 2019.
It includes measures to allow small employers to band together to offer 401(k) multiple-employer plans, give part-time workers access to retirement plans, take away the 70-1/2 age limit for individual retirement account contributions and raise the age for required minimum distributions to 72 from 70-1/2.
This information is not intended as legal or tax advice and should not be treated as such. You should contact your estate planning and/or tax professional to discuss your personal situation. The contents in this article are being provided for educational and informational purposes only. The information and comments are not the views or opinions of Union Bank, its subsidiaries or affiliates.
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