Women are not small men

Women are not small men.” This slogan alerts health practitioners to the fact that, while there are many similarities between the sexes, women also require a broader set of diagnostic tools and solutions than they would if they were simply smaller versions of men. 

Similarly, until we’ve achieved greater social equality, advisers and financial architects need to know that women are not small men when it comes to retirement savings.

The problem with retirement savings, we are often told, is that we save too little, too late and live too long. 

Well, each of these problems tend to hit women particularly hard.

Women live too long

According to Alexander Forbes’ 2016 Benefits Barometer, men and women retiring at 65 years can expect to live another 16 and 20 years respectively, with seven to nine of these years to be enjoyed with relatively good health. 

Partnerships between state and financial institutions have become important to ensure that the pension system as a whole is more sustainable, particularly in the light of considerable increases in longevity across the board. 

Not to mention rising retirement deficits (as highlighted in a 2012 study by Liam Foster), increasing healthcare costs and decreasing social benefits (according to a study by Craig Mckenzie and Michael Liersch) in many countries. 

But the need for a more sustainable pension system is acutely important for women who need a larger income replacement rate than men (according to a 2012 study by Douglas Hershey and Joy Jacobs-Lawson) to enjoy similar retirement benefits for longer lives, even if they did everything else the same. 

As a quick comparison, in Figure 1 we use a scenario of a “vanilla” retirement saver who starts saving from the age of 20, retires at 65 and must live off the annuities from the savings achieved on retirement date: the small difference between a planned life expectancy of 70 years and one of 75 years can mean 17% less to live on annually in retirement. 

Figure 1 shows the quick drop in retirement provisioning with relatively small increases in longevity in this (admittedly over-simplified) analysis.   

Women save too little, too late

According to an article published in the Journal of Financial Counseling and Planning, women generally hold lower levels of wealth (assets, inheritance, etc.) and have significantly lower-paid jobs than their male counterparts. 

A research study on ageing found that many women still consider retirement planning to be their husbands’ responsibility and men are more likely to discuss their retirement with friends, relatives and co-workers and are more focused on retirement than women.

In an article on the topic, Madeline Fleisher indicated that a combination of factors, like earning less money, working part-time, hopping in and out of the workforce to take care of family members, and living longer, contributes to a very bleak picture when it comes to women’s retirement planning.

Female-headed households earn substantially less than male-headed households in SA and roughly half of SA’s households are female-headed. Mothers are primary breadwinners in four out of 10 households, according to the South African Board for People Practices’ (SABPP’s) women’s report for 2017. 

These realities are likely to dissuade women from saving regularly or in large amounts.

Formal employment determines whether savings choices are compulsory or elective. 

The Alexander Forbes Benefits Brochure for 2016 lays out the challenges to service providers offering benefits for informal workers: rock-bottom costs, challenging administration if employment is temporary, intermittent, and of indeterminate length. 

By way of illustration, our analysis in Figure 1 shows how a simple five-year delay in saving (i.e. a retirement savings start at age 25 instead of age 20) can cut retirement provisions in half!

Women’s dominance in the part-time and casual employment sector and often long periods of non-employment impact significantly on the amount of money accumulated in their retirement funds, according to researchers Debra Grace, Scott Weaven and Mitchell Ross. 

Informal employment, sporadic earnings, mobility and lower wages all contribute to lower and unreliable savings and therefore less access to formal savings vehicles for women.

Although women’s participation in higher education and in the labour market has increased in developing countries, striking differences between the sexes in career success and sporadic earnings persist, write Andrea Evers and Monika Sieverding. 

Women tend to have much shorter careers or working lives than men, they are more likely to be part-time workers, earn a lower wage than the opposite sex and choose jobs that do not offer a retirement plan, researchers found in an article published in Economic Inquiry.

In the US, women are significant contributors in the workplace but, according to Grace, Weaven and Ross, more than half of working women don’t contribute to retirement funds. 

At home, when women plan for retirement savings, only 11% consider the impact of the break in employment due to maternity leave and only 10% consider the impact of a spouse passing away before they do, according to the 2015 Sanlam Benchmark.
 
For example, many women don’t consider that when they stop contributing to their company-sponsored retirement plans while on maternity leave, their employers will stop matching the pension contributions, which means less money is paid into their retirement savings. 

Only 15% of women consider the differences in salary levels and only 34% consider higher longevity of women, according to Sanlam’s Benchmark. 

Financial security and the need to be financially self-sufficient are therefore of more concern to women as they are responsible for multiple people and will likely outlive their male partners by several years, writes Mathew Greenwald in an article looking at the impact of retirement risk on women.

Research by Sandra Timmermann found that working part-time or as a consultant is an option that many women consider when they acquire greater family responsibilities. 

In SA, the SABPP-report found, 80% of the new self-employed between 2008 and 2014 were women. 

It seems that many of the changes that millennials will bring to the world of work correspond to that of women. 

The consequent change required in addressing their financial planning will likely overlap: even more reason for financial service providers to consider those earning a fragmented income.

And then there’s the wage gap! It’s real – women earn less as a group for the same work. The Economist puts women’s earnings 18% lower than that of men on average. 

Stats SA puts the gender wage gap of South Africans with tertiary education at similar levels. 

All things being equal then, sought-after skilled employees who diligently save the tax-deductible proportion of salary for retirement will save a proportion of a smaller amount. 

The cumulative effect of this wage gap alone on retirement funding is substantial. 

The third scenario in our Figure 1 analysis adds an 18% savings gap to previous scenarios to illustrate the compounding effect of the wage gap on end retirement wealth.

So, compound the wage gap with the likelihood of living longer and saving over less time in fragmented ways and you have a perfect storm of retirement poverty.

In conclusion, women are like everyone else, but they’re also women and individuals: practitioners should be mindful of all three lenses.

In carving out a financial future for women, some lessons are generic (e.g. time value, compounding interest, risk-return) and some are particular to the individual (e.g. life goals, career path, etc.). 

This article is a call to be aware of the trends particular to women as a group that have significant impact on their financial position in retirement: longevity, the wage gap, shorter saving time, an increased burden of financial dependents, and a reluctance to manage their own savings.

As partners in securing the financial futures of women, we have an obligation to be well-informed and ready with solutions that are particularly needed by women.