Saving and Investing: A Challenge for Women

Policy Backgrounders | Retirement | Work & Wages

No. 161
Thursday, April 15, 2004
by Celeste Colgan and John Goodman


"Nearly half of all working families have no retirement savings account."

In recent years, we have heard a lot about increasing inequality in the distribution of income. To some commentators this inequality reflects institutional unfairness in our society. However, careful studies have shown that the greatest degree of inequality exists among senior citizens, and the single most important cause of that inequality is not differences in preretirement income but differences in the degree to which people with the same income save rather than consume.1 Clearly, some people are not saving enough. According to the "Survey of Consumer Finances," conducted every three years by the Federal Reserve:2

Figure I - Marital Status of the Female Population Age 65 and Older%2C 2000

  • Nearly half (47 percent ) of all families with at least one worker between the ages of 21 and 64 have no retirement savings account.
  • Of the 47.8 million workers who do have an account, the median balance (half are larger, half are smaller) is $27,000.
  • Among workers nearing retirement the picture improves only slightly:3
  • Nearly one-third (30 percent) of workers age 55 to 64 have no retirement savings account.
  • Among those who do, the median balance is about $55,000.

To put that in perspective, $55,000 at retirement will provide a pension annuity of about $400 a month. While the failure to save enough is a characteristic of men as well as women, it appears to be a bigger problem for women. For example, one study found that:4

  • Among employees ages 18 to 62, the average balance in 401(k)s and similar accounts for women was half that of men.
  • Among those nearing retirement age, the average balance for women was only 20 percent that of men's.

"Widowed, divorced and single women are more likely to face poverty in retirement."

Insufficient retirement savings means having an inadequate retirement income to sustain oneself. More women than men face this problem, partly because they are more likely to live alone. In fact, nearly half of all women over age 65 are widows.5 [See Figure I.] This is important because compared to two-person households, one-person households have smaller retirement savings, smaller Social Security benefits and less personal savings. Consider that:6

Figure II - Percentage Distribution of Elderly Persons in Poverty

  • Divorced men and women ages 65 and over are more likely to fall below the poverty line than those who are married - that probability is even greater for those who are widowed, separated or were never married.

Why do women have such difficulty supporting themselves in retirement? Largely because retirement programs are linked solidly with employment. Our entire tax-advantaged retirement system is designed to support steady, full-time employees of firms that offer generous benefit packages.

Nowhere does the gender difference in workforce behavior play a more significant role than in a woman's ability to accumulate retirement assets. Women tend to choose jobs that better fit with raising children. They are more likely to drop out of the workforce to take care of family, to work in industries with family-friendly policies, to work part-time, and to choose flexible work hours over higher salaries. As a result, they often fail to accumulate adequate financial resources for their retirement years. A woman who doesn't maintain a steady job over many years will find that our retirement savings system is of little benefit.

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