Women are more likely than men to be in poverty during retirement. There are multiple causes for this. Women live longer than men, so they simply have more years of retirement to finance. Also, women typically have less in retirement savings than men due to obstacles faced during their working years. These obstacles include lower pay and a greater likelihood of part-time work. All of this adds up to a precarious retirement situation for many women.
Social Security is a major component of retirement savings for almost all women. Social Security is an earnings replacement program, designed to replace a certain percentage of earnings in retirement. This is based off a worker’s 35 years of highest earnings. If hypothetical worker Smith begins working at age 22 and works continuously until age 67, then Smith’s Social Security benefit would be based on the 35 highest earning years of that 45 year career.
The problem many women encounter is that they are more likely to work part-time in order to raise children or provide caregiving to an elderly family member. In 2016, 15.3 percent of women ages 25-44 worked part-time, compared to just 6.4 percent of men ages 25-44. This decreases the amount they are earning in a given year. Thus, many women end up with years of low earnings included in their Social Security benefit calculation, which lowers the overall benefit they receive.
When the Social Security program was created in the 1930s, it included spousal benefits and widow benefits, primarily targeted at women who did not work at all and would, therefore, depend upon their spouse for retirement. Times have changed in the past eighty years and so have marriage rates, family structures, and the number of women in the workforce. As these societal forces have changed, the relevance of spousal and widow benefits in Social Security has decreased. In 1960, spousal and widow benefits accounted for a combined total of 23 percent of total benefits. By 2016, that combined total was down to 11 percent.
To counteract the impact of child-rearing and caregiving duties on women’s Social Security benefits, some have proposed instituting a system of caregiving credits that would work to improve women’s benefit in retirement. Of course, this system would not be available exclusively to women, but demographics indicate that women would disproportionately benefit from it. The Center for Retirement Research recently released an informative issue brief on the subject.
Lack of access to an employer sponsored retirement savings plan is a major barrier for many women in saving for retirement. Time out of the labor market or part-time work are both major causes of lack of access. As women continue to spend more of their adult lives working and an increasing number of women are the sole breadwinners for their families, retirement plans must adjust to these new realities and not remain stuck in the social and family dynamics of the past.