In America’s retirement crisis, women get the short end of the stick.
While women have a lifetime to build up their wealth, they’re let down by several factors that impact their ability to achieve economic security into retirement.
The gender pay gap persists and has lasting effects on women. The health crisis has also reinforced outdated gender norms that put women’s future financials at risk. Long-term investing may be part of the solution, but women should consider a nuanced approach.
In our conversation with Sallie Krawcheck, co-founder and CEO of Ellevest, a wealth management firm created by women, for women, Krawcheck emphasized the financial blight women face during their journey to retirement, the challenges that arise for them in retirement and the disproportionate effects the health crisis has had on women of all backgrounds:
— Retirement is a gender issue.
— Women’s relationship with investing.
— Pandemic impacts on women’s financial security.
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Retirement Is a Gender Issue
Wealth is accumulated by saving and long-term investing, but it turns out that women are at a disadvantage in growing long-term wealth compared with men.
A TIAA report on the gender retirement gap found that if two recent college graduates, a man and a woman, have the same amount saved for retirement, it would take about 18% of the woman’s salary in savings to equal 10% of a man’s salary to save the same amount. The report also noted that women tend to receive fewer salary increases, among other issues.
The American Association of University Women data shows that women in the U.S. who work full time get paid 82 cents to every dollar that men earn. This income disparity translates to lower wealth accumulation among women over time, a hit to their lifetime savings, which ultimately has lasting impacts for women that appear in retirement.
A reason why retirement can be viewed as a gender issue is that women have longer life expectancies.
Since women earn less and have fewer years than men in the workforce, this gives them less time to accrue lifetime wealth and benefits from an employer-sponsored retirement package or a retirement vehicle. As a result, women face financial instability in retirement.
Krawcheck says women can take advantage of their longevity and use their longer lifespans as a benefit by investing more. “By projecting she’s going to live longer, we can invest out longer to potentially earn a more significant return,” she says.
In the current state of their finances, women are susceptible to outlasting their financial assets. Women hold less overall wealth compared with men and this shows up when women can’t afford retirement or live comfortably in their retirement years.
“The retirement savings crisis in the United States of America is a women’s crisis,” says Krawcheck.
Krawcheck points to flaws in the financial advisory service industry as a consequence of the perils women face in retirement, suggesting the industry hasn’t been designed to serve women.
“While the industry would tell you we’re gender-neutral, 99% of investment dollars are managed at companies owned by white men, 98% of mutual fund dollars are managed by men, 90% of traders are men, (and) 86% of financial advisors are men,” she says. “Maybe the reason women aren’t investing as much is that the industry built a business for itself without ever recognizing it.”
[SEE: 10 Best-Performing 401(k) Funds.]
Women’s Relationship With Investing
Some may view the reason that women don’t invest as much as men — or women’s apprehension to invest — is that they are more risk-averse, but Krawcheck turns this misconception on its head by putting forth a different rationale: The industry doesn’t appeal to women, that it’s one that’s dominated by men and women prefer a different approach to invest.
Ellevest’s investing methodology is consistent with how women want to invest, the company’s CEO says. Krawcheck has recognized that women are risk-aware rather than risk-averse, and in the face of volatility, they seek more certainty and prefer to meet their financial goals rather than seek to outperform a benchmark.
“The gender difference is not risk aversion but risk awareness. Women don’t want to take on risk(s) they don’t understand,” Krawcheck observes.
In Ellevest’s private wealth management white paper, “The Ellevest Difference: An Intentional, Transparent Approach to Private Wealth Management,” Ellevest incorporates traditional long-term investing principles like diversification of assets, portfolio risk management and tax efficiency with environmental, social and corporate governance (ESG) investing. The wealth management firm views impact investing as a unique strength to performance.
“We believe that the instruments we offer on our platform have the potential to not only enhance portfolio returns but also to provide the positive and intentional impact our client seeks,” the report states.
Krawcheck is a strong believer that ESG is a powerful edge.
“Diverse leadership offers higher returns on equity, greater innovation, lower risk, greater employee engagement and greater customer engagement. The power of diversity is so great that diverse teams outperform homogenous and smarter teams,” she says.
There isn’t a perfect time to start investing. Krawcheck encourages women to get started rather than waiting for a perfect time or educating yourself on every detail beforehand, or as she puts it: “outsource” financial planning.
[See: Infographic: Investing Barriers Women Face.]
Impact of the Pandemic on Women
Krawcheck says women are at risk of losing decades of economic progress, so it’s no wonder they’re worried about retirement.
“Women who are privileged enough to work from home have lost productivity by double-digit percent, while men have gained productivity, like gains of 50%. The promotions that have occurred during the pandemic had gone something like 3-to-1 to men,” she says.
She also stressed a growing concern for the number of women who are considering dropping out of the workforce because of family care and child care responsibilities.
A number of women work in industries that have been deeply affected by the pandemic, including hospitality, retail, restaurants and caregiving — occupations that require in-person work. With these businesses having to either lay off employees or temporarily shut down, women have trouble making ends meet.
According to the Center for American Progress, many women of color are often the sole providers or breadwinners for their families, so work disruptions due to the pandemic impact women of color’s capacity to provide for their families.
“Many women of color are less likely to have the wealth and savings necessary to go for an extended period of time without earnings,” according to the nonprofit’s report.
The statistics put the consequences in perspective. AAUW reported in its 2020 update, “The Simple Truth About the Gender Pay Gap,” that between February and April, women’s unemployment rate rose by 12.8% compared with 9.9% for men.
As a result of the consequences brought about by the pandemic, like virtual schooling, child care has been a challenge for women in the workforce. Women who work full time may have had to shift to part-time work, and women who work multiple part-time jobs may have had to choose one job over the other to address their child care needs. These “work style” changes can result in obstacles for women trying to move up the work ladder.
Because of domestic and caretaker responsibilities, many women have opted to leave the workforce altogether. This time out of the workforce may put a dent into their earning power over time.
The retirement risks women face can be mitigated, experts say, if the different realities women and men face in retirement are addressed.
More from U.S. News
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Q&A With Ellevest CEO Sallie Krawcheck: Addressing Women’s Retirement Risks originally appeared on usnews.com
