Whether we want to admit it or not, our society has long-established structures that mean men and women have it differently, no matter what aspect of their lives we are talking about. The journey to a secure and comfortable retirement is no exception to this rule. While conversations often revolve around a universal retirement age, there is a far more critical financial distinction that is often overlooked when it comes to retired men and women. The simple, yet complex, reality is that women need more money in retirement, compared to men. Why is that? It’s definitely not because women are inherently bigger spenders or financially frivolous. The reasons are deeply rooted in systemic issues that affect a woman’s earning and saving potential throughout her entire life. Take a look at some of the fundamental reasons women often face a funding gap and do not have enough capital to live their golden years the way they want and, more importantly, the way they should. While you’re at it, you can also learn practical, actionable strategies to understand and solve this major problem.
Why do retired women need more money than men?
As explained by financial experts from across the industry, women don’t have a different mindset than men when it comes to the fundamental principles of investments and savings. Both categories understand and appreciate that a peaceful and financially stable retirement depends directly on how you strategically use and save your money during your working years. The goal is the same for everyone. What’s different is that women have to overcome many more significant, and often invisible, obstacles than men when planning for their golden years. These challenges are not individual failings but societal patterns that have a cumulative financial impact over decades.
This financial disparity is the result of a compounding effect of several factors, including time spent out of the workforce, the persistent gender pay gap, and even biological realities like a longer average lifespan. These are not just talking points; they are real-world hurdles with tangible consequences for a woman’s retirement nest egg. Let’s delve into the most important ones:
1. Career interruptions
According to extensive statistics, women are far more likely to be the ones who take significant time away from work than men, primarily to assume caregiving roles, whether it’s for their young children or for aging parents and other relatives. As revealed by the Pew Research Center1, only an estimated 2.1 million fathers stayed at home to take care of their children in 2021. In stark percentages, this translated to approximately 18 percent of stay-at-home parents being fathers, leaving the vast majority of this role to mothers.
When it comes to women, the statistics provided by AARP paint an even broader picture, showing that a staggering 66% of women have taken a substantial break from work at some point in their careers to focus on caring for others. Such a break, while often a personal or family necessity, can have a serious and lasting impact on a woman’s career trajectory and, subsequently, her retirement savings. The immediate consequence is a lack of work, which means a lack of salary. This, in turn, translates to no employer-matched retirement savings contributions during that period and a significant pause in accumulating credits toward Social Security benefits.
The damage, however, goes much deeper than just the lost income for that period. These career gaps halt the powerful engine of compound interest on investments that were never made. Furthermore, this phenomenon, often called the “motherhood penalty” or “caregiver penalty,” affects future earning potential. “Women who have children tend to be pushed out of the labor market because of their childbearing needs”, says Kaitlin Walsh-Epstein, the chief marketing officer of student refinancing company Laurel Road. Returning to work after a long time can also profoundly affect a woman’s career path. She may face challenges re-entering at the same level, her skills may be perceived as outdated, and she may miss out on crucial promotions and raises, consequently lowering their lifetime earning potential and their ultimate retirement savings.
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2. The gender pay gap
The gender pay gap is another persistent and powerful factor that systematically disadvantages women’s ability to save for retirement. According to statistics provided by Pew Research Center, women made approximately 83 cents for every dollar men earned in 2022. While this shows some progress from 2002, when women made only 80% as much as men, the slow pace of change means that generations of women have been building their careers on an uneven playing field. For women of color, this gap is often significantly wider, creating an even greater barrier to financial security.
Not having the same income as men can affect women’s finances in the short term, impacting their monthly budget and ability to handle unexpected expenses, but its effects are magnified exponentially in the long run. When it comes to retirement, not earning as much throughout your working years directly affects your possibility to put money aside for a relaxed retirement. For instance, the recommended amount to be saved for retirement, as advised by financial giant Fidelity, is 15% of one’s pretax income for each year of one’s working life.
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Unfortunately, a lower paycheck might not give women the possibility to save this much for their golden years after covering essential living costs. Even if they do succeed in putting that same 15 percent aside, the absolute dollar amount is inherently smaller. Over a 30- or 40-year career, this difference in contributions adds up to a substantial deficit in what their male counterparts save for their retirement years. The power of compounding works on the amount invested, so a smaller principal leads to a significantly smaller nest egg over time.
In addition, Social Security benefits are directly and closely related to one’s income throughout their working period, specifically calculated based on the 35 highest-earning years. As revealed by the Social Security Administration, the consequences of the pay gap are clear: the average annual Social Security income for women, in 2021, was approximately $14,204. Men, on the other hand, received an average annual social security income of $18,108. This nearly $4,000 annual difference is a direct result of decades of lower pay and potential career gaps.
“If you’re being paid 84% on the dollar, your 6% contribution to your 401(k) doesn’t go as far as your male counterpart’s 6% contribution,” explains Walsh-Epstein. “The pay gap is systemic but it also continues to escalate when you think about women saving for retirement.” This ripple effect means women start behind and face a continuous headwind in their efforts to catch up.
3. Lower chances of saving for retirement
The combined impact of career interruptions and the pay gap logically leads to another challenge: women often have fewer opportunities and resources to save. As explained by Fidelity, research shows that around 69% of women are actively saving for their golden years in an employer-sponsored plan, as opposed to a higher 77 percent of men. Sadly, this reality affects women’s outlook on their own financial futures, with only 42% of women reporting that they are confident they can rely on their retirement savings to live comfortably, compared to a more optimistic 53% of men.
Apart from the gender pay gap and the fact that women interrupt their careers to take care of others, there are also many other subtle but significant reasons why women cannot save for retirement as much as their male co-workers do. For example, some studies suggest that women, partly because they often have less of a financial safety net to fall back on, tend to be more risk-averse in their investment choices. While being a cautious investor is not inherently negative, an overly conservative portfolio (heavy on cash or bonds) may generate lower long-term returns compared to a more balanced portfolio with greater equity exposure, further widening the retirement savings gap over time.
For all of these reasons, women are naturally more worried about retirement and about the possibility of having to find extra income sources in retirement just to make ends meet. This financial anxiety is not a personality trait but a rational response to a lifetime of systemic financial disadvantages. The confidence gap in retirement savings is a direct reflection of the very real and measurable income and opportunity gaps they face.
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4. Longer life expectancy
No one knows precisely how long they will live and for how long they will be able to enjoy their golden years. But, one undeniable demographic trend is that, compared to past years, people all over the world live longer. More than that, and critically for retirement planning, statistics consistently show that women live longer than men. This means they might get to enjoy more years of their retirement than their male counterparts, but it also means their retirement savings must stretch further.
“Women are generally more likely to engage in health-seeking behaviors,” explains Dr. David Cutler, a family medicine physician at Providence Saint John’s Health Center in California. “They often visit doctors regularly, adhere to medical advice, and get involved in preventive healthcare measures. This proactive approach to health may contribute to early detection of diseases and better management of any diagnosis to avoid premature illness and death.”
According to the Centers for Disease Control and Prevention, the average life expectancy for women in the U.S. was 79.3 years in 2021, as opposed to men, whose life expectancy was 73.5 years. This nearly six-year difference has profound financial implications. Financially speaking, more years of life require more money to maintain their standards of living, cover housing, food, and other daily costs. A longer lifespan also means a greater number of years where inflation can erode the purchasing power of their savings.
Furthermore, a longer life brings a higher probability of significant healthcare expenses. Women are more likely to require long-term care or assisted living services later in life, which can be extraordinarily expensive and can rapidly deplete a retirement nest egg. Often outliving their male partners, many women also face the prospect of managing household finances alone in their later years, frequently on a reduced income after the loss of a spouse’s pension or Social Security benefits. This combination of a smaller nest egg and a longer timeline to fund creates the perfect storm for financial insecurity in old age.
Bottom line
It might be more difficult for women to earn more and save money for retirement due to these deep-seated challenges, but it is extremely important to take all necessary steps to ensure their own economic mobility and independence. This starts with aggressive advocacy in the workplace. This might mean paying more attention to compensation packages provided by employers when taking a new job, being more confident in their skills when negotiating their salaries by researching industry benchmarks, documenting achievements, and being prepared to ask for what they are worth. Furthermore, women should make sure that the benefits provided by their future employers, such as quality health insurance, robust retirement plans with matching contributions, and paid maternal leave, are in line with their plans and needs.
Beyond the workplace, building financial literacy is paramount. Take the time to learn about the different types of retirement accounts, such as traditional and Roth 401(k)s and IRAs, and understand the immense power of compound interest. The earlier you start saving, even with small amounts, the more time your money has to grow. Don’t be afraid to learn about investing beyond simple savings accounts to ensure your money is working hard for you and outpacing inflation over the long term.
Creating a concrete financial plan is another crucial step. Consider working with a fee-only financial advisor who can provide unbiased advice tailored to your specific situation and who understands the unique financial challenges women face. It’s also vital to specifically plan for future healthcare costs. If eligible, contributing to a Health Savings Account (HSA) can be a powerful tool, as it offers a triple tax advantage. Investigating long-term care insurance options in your 50s can also be a prudent move to protect your assets later in life. While the systemic barriers are real, taking proactive, informed control of your finances is the most powerful tool a woman has to overcome these hurdles and build the secure, comfortable retirement she deserves.
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One Response
This is a good article and it makes sense.