New research suggests that even though the overall financial wellness gap between men and women had shrunk to 8.9% by the end of 2015, women still face particular challenges that make it increasingly difficult to save for retirement.
Financial Finesse’s annual “Gender Gap in Financial Wellness” report shows that, although women have been making strides in improving their financial behaviors, they are still more likely to have earnings gaps during their careers, while they continue to live longer than men and face higher lifetime health care costs. These factors make saving for retirement particularly challenging.
Liz Davidson, CEO and founder of Financial Finesse, says, “Although we assume pay parity for the typical 25-year-old, there is a 28% gap in the additional retirement savings needed to cover estimated retirement expenses, primarily due to women’s greater life expectancy.”
If you add to that a career break, the gap becomes even wider. The researchers note that women are still more likely to become caregivers or stay-at-home mothers. Because of compound interest, women who take these breaks earlier in their career would have to save more money to be retirement ready at age 65.
Financial Finesse identified the gap between women who remain in the work force for their entire working lives and women who take breaks for such purposes as raising children, taking on “passion projects” that provide little to no pay, or caring for aging parents. According to the study, women who take breaks early in their careers face a potential retirement savings shortfall of up to $1.3 million dollars.
This makes saving early for retirement especially important for female Millennials. This group, defined in the report as being under age 30, is the most behind when it comes to retirement saving. The paper notes that only 16% of these women say they are on target to meet their retirement goals.
The research also emphasized the importance of employer-sponsored financial wellness programs. The report found the biggest financial wellness gender gaps are in the areas of money management and investment confidence but that women, more so than men, are likely to accept financial education and coaching provided by their employers.
The research also points out that boosting a Millennial employee’s financial wellness score by just one point through making modest behavioral changes such as opening a small emergency fund or paying down debt can increase long-term retirement savings by 15%.
Because the wellness gap is largest for those under 45, Financial Finesse recommends “targeted educational offerings” that focus on areas that women in this demographic prioritize such as cash and debt management.