The Female Factor
Why women face greater retirement risk and what can be
done to help beyond employer-based retirement programs

By Cindey Hounsell, J.D.
Executive Director of the Women’s Institute for a Secure Retirement (WISER)
and
Pat Humphlett, J.D.

Executive Summary

A large number of baby boomers are moving closer to retirement age and may be facing increasing personal financial risk during retirement. In response, many policymakers and retirement planning experts are raising questions about the adequacy of traditional sources of retirement income. As the country considers these issues, it is important to recognize that women face an even greater risk than men of experiencing a dramatic decline in their standard of living in retirement. This is an issue that should be addressed and understood by both policymakers and individuals planning for retirement. This study offers an analysis of women’s economic position in retirement and the factors that determine whether they will achieve financial security in what should be their golden years.

Several factors, including longevity and socio-economic issues, play into the financial challenges women will face in retirement.Women live longer than men and therefore have to prepare for a longer retirement. Women are also much more likely to spend some of their retirement years alone due to widowhood or divorce. Statistics show that women have less income than men to stretch over a longer number of years in retirement. In fact, the annual median income for women age 65 and older is only 58 percent of men in that age group. Therefore, women face much greater risk of declining living standards or poverty in old age, particularly if they are living alone.

While the good news is that there are more women in the workforce now than at any other time in history, they continue to earn less than men, are more likely to work part-time and to leave the workforce temporarily to serve in a caregiver role. Lower earnings combined with fewer full-time years in the workforce mean that women are less likely to receive benefits from employer-based retirement plans, more likely to receive smaller Social Security benefits, and have fewer personal savings for retirement. Less savings and lower income lead to a greater risk of outliving financial assets, facing substantial declines in their standard of living, not to mention having inflation erode buying power.

For a variety of reasons, lifetime annuities represent a unique solution to the challenges women face in retirement. Annuities provide a steady stream of income that is guaranteed to continue for a lifetime, serving as insurance against outliving retirement assets. Married couples can choose an annuity with a survivor benefit to provide continuing benefits for a widow or widower. In addition, the established amount of regular annuity payments alleviates the burden of determining how much a retiree should withdraw from an investment each year to meet their financial needs. Finally, annuities provide security against investment risk and economic volatility.

Many women face tremendous challenges in planning for a secure retirement. Policymakers need to be attentive to a range of issues that will affect women - from encouraging greater retirement savings to strengthening employer-based programs to providing incentives for people to more effectively manage retirement income. One important step is to boost the visibility of annuities by providing education about the role that they can play in providing income for a lifetime.Women should consider investing a portion of assets, including sums from the sale of a home, life insurance payments, inheritance or other sources, in an annuity that provides them with a steady stream of income in order to alleviate the risk of declining standards of living or outliving retirement income altogether.

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