The Retirement Security Project Releases New Paper on Closing the Saving Gap Between Men and Women

The Retirement Security Project Releases New Paper on Closing the Saving Gap Between Men and Women

The Retirement Security Project, an initiative supported by The Pew Charitable Trusts in partnership with Georgetown University's Public Policy Institute and the Brookings Institution, released a paper today on “Retirement Security for Women: Progress to Date and Policies for Tomorrow.” With half of all working women saving an estimated $34,000 in IRA or 401(k)-style saving accounts, as compared to an estimated $70,000 for men, the paper examines the available data on women and retirement and offers an array of policy solutions aimed at closing the saving gap between men and women.

“Women have experienced substantial gains in the labor market over the past decade,” notes Lina Walker, Research Director of The Retirement Security Project and Research Professor at Georgetown University. “However, due to longer life expectancy and the demands of child-birth, child-rearing, adult care, and other factors, women still tend to experience shorter and more interrupted careers than men do, and are more likely to work either part-time or in low-paying occupations. The resulting work patterns adversely affect women's ability to save for retirement.”

According to the paper's authors, Leslie E. Papke, Professor of Economics at Michigan State University; Lina Walker; and Michael Dworsky, a graduate student at Stanford University and formerly a Senior Research Assistant at The Brookings Institution, the increase in women's labor force participation is not translating into retirement benefits at the same level as men. The authors highlight several reasons for this. First, workforce patterns disproportionately impact women's ability to accrue private pension plans and social security, since the majority of retirement benefits are tied to job tenure and earnings. According to Dr. Papke, “Women are more likely to have shorter careers and shorter tenure on their jobs (with greater employment gaps due to child-rearing and caring for other family members). Also, even at comparable age and years of education, women's wages are 20 percent lower than men's, even among full-time workers.”

Dr. Papke also notes that changes in the structure of pensions — the shift from defined benefit to defined contribution plans — have also differentially affected the ability of men and women to prepare for retirement. Defined contribution (DC) plans tend to have faster vesting schedules and they also place less emphasis on long job tenures than defined benefit (DB) plans — these attributes help women save given their employment patterns. The loss of life annuities through DB plans, however, hurts women more than men because women tend to live longer and benefit more from the protection that guaranteed lifetime income provides against outliving their resources.

Finally, women are likely to experience longer retirement periods than men because they tend to live longer than men, yet often retire at the same time as their (typically) older spouses. Not only do elderly women have to fund a longer retirement period, they also face increased expenses incurred at their husband's death and at the loss of his income. As a result, women have a greater need for retirement saving and for forms of wealth that protect against outliving their assets.

One of the paper's key proposals for helping workers who interrupt market work to care for a child or adult, is to allow caregivers to contribute to an IRAs for episodes of caregiving. “Under this proposal, caregivers could contribute to an IRA, up to the qualified contribution limit, and benefit from the preferred tax treatment,” notes Lina Walker. “The IRA could operate in conjunction with tax or financial incentives that target caregivers or more general incentives that increase retirement saving (such as the Saver's Credit).”

“The proposed IRA expansion for caregivers could usefully be supplemented by changes to Social Security rules,” adds Walker. “The spousal and survivor benefit formula partly compensates women for their home production (such as care-giving) rather than market work if their earnings are very low relative to their husband's. Similar adjustments, however, are not available to unmarried women and are available only to a limited extent to married women whose earnings are more similar to their husband's (through the survivor benefits). The Social Security benefit formula could be adjusted to remove the penalty for care-giving and proposals to that effect include either disregarding or imputing a wage for the years spent out of the labor force (years with zero or low earnings).”

The authors note that a number of new policies have already been introduced over the past several years that make it easier for women to save and help close the gap between men and women's retirement prospects. These include automatically enrolling employees in pension plans (such as 401(k) or IRAs) or providing tax incentives, such as the Saver's Credit, for contributions to a retirement account.

“Simple changes to the structure of existing pension plans can lead to significant increases in pension savings,” notes Walker. “When the default option for 401(k) plans was changed from an opt-in system to one that automatically enrolled individuals into the 401(k) plan, participation rates among newly hired employees increased significantly. By starting early, it is possible to accumulate large amounts even for lower earners, who tend to be women. By making increases to contributions rates, diversification of investment, and rollover at the time of job change automatic as well, this policy can be enhanced in a way that will bring even more benefits to women in the workforce.”

The paper also points out that, while automatic 401(k)s have been extremely successful at increasing retirement saving, the gains in retirement security have only applied to workers with employer-sponsored pension plans. One out of every two workers, an estimated 75 million workers, has no access to employer-sponsored pension plans. These workers tend to be part-time workers, workers with short job tenure or employees of small firms, all which include high percentages of female employees. For these workers, the authors suggest IRAs as an ideal vehicle for tax-preferred saving, since IRAs are portable and employees can continue to contribute to the IRAs even when there is a job change.

“Women's lower earnings also make them less likely to benefit from existing tax incentives for saving, which tend to favor the wealthy,” notes Dr. Papke. “An important policy innovation that focuses on exactly the group that is most likely to benefit from the tax incentive is the Saver's Credit.” The Saver's Credit gives taxpayers earning less than $52,000 a tax credit for contributions to 401(k) plans, IRAs, and similar retirement savings vehicles. Depending on the taxpayer's income, households can receive a credit of either 10, 20, or 50 percent of their contributions to a retirement account. The authors note that, in its present form, however, the Saver's Credit is nonrefundable: it merely offsets a taxpayer's tax liability, providing no saving incentive for almost 50 million lower income households that have no income tax liability. They propose making the Saver's Credit refundable to provide an important incentive to these households to save regularly and continually.

They also point out that tax filers can take advantage of the saveable moment offered through the tax refund to split their refund into more than one account, allowing them to direct deposit refund dollars into a saving vehicle. The authors also propose reforming the asset tests that accompany federal means-tested benefit programs, so that single mothers are not penalized for accumulating retirement saving.

The paper also highlights several other areas which may prove of benefit to women, such as policies to annuitize retirement resources to provide lifetime guaranteed income and those that allow retirees to access housing equity for retirement consumption purposes and to pay for long-term care. The authors caution however, that further research on the impact of these policies is needed to fully understand their benefits and impact.

“It's never too late to start saving for retirement,” adds Papke. “With the help of policies designed to recognize the unique challenges that working women face in their workforce patterns and family commitments, we can close the retirement saving gap among men and women and help more women build a nest egg for their future.”

About the Retirement Security Project (
The Retirement Security Project is supported by The Pew Charitable Trusts in partnership with Georgetown University's Public Policy Institute and the Brookings Institution. It is directed by William Gale, also Director of Economic Studies and Co-Director of the Tax Policy Center at The Brookings Institution; with Managing Directors Mark Iwry, Non-Resident Senior Fellow at the Brookings Institution and David C. John, Senior Research Fellow in Retirement Issues and Financial Institutions at the Heritage Foundation. The Project's Advisory Board members include former Clinton Treasury Secretary Robert Rubin; former Bush Deputy Assistant Treasury Secretary for Economic Policy Bruce Bartlett; Harvard Law Professor Daniel Halperin; Nancy Killefer, Director, McKinsey and Company; John Shoven, Director of the Stanford University Institute for Economic Policy Research; Michael Graetz, Bush Deputy Assistant Treasury Secretary for Tax Policy; and Eugene Steuerle, Deputy Assistant Treasury Secretary for Tax Analysis during the Reagan Administration.

Pew is no longer active in this line of work, but for more information visit the Retirement Security Project on