retirement savings  |  march 15, 2024

Ways to Help Women Overcome the Retirement Savings Gap and Boost Confidence

Addressing barriers to retirement savings for women.

 

Key Insights

  • Women lag far behind men in terms of retirement contributions, savings, and confidence.

  • Typically, lower incomes, higher debt loads, and shorter job tenures are some of the factors contributing to the gender savings gap.

  • Women could help narrow the retirement savings gap by taking steps that may improve personal finances and build financial confidence.

Judith Ward, CFP®

Thought Leadership Director

The increased focus on diversity, equity, and inclusion has driven recent research on financial wellness, and racial gaps in retirement savings, in particular, have gained significant attention. But gender1 is an equally important dimension of the retirement savings gap. In 2023, our T. Rowe Price Retirement Savings and Spending Study, which surveys a nationally representative group of 401(k) plan participants, focused on the gender gap in retirement savings—and the disparities are striking.

Our analysis showed that women were contributing less annually to their workplace 401(k) plan and had significantly lower retirement account balances (Figure 1).

Therefore, it is understandable that women’s level of financial stress is higher with 62% of women reporting high and moderate levels of stress compared with 47% of men.

The gender gap in retirement savings is a challenge for women who are preparing for retirement, and we understand that there are various social and economic factors that significantly affect women’s ability to save. In our research, we examine how traditionally lower incomes, along with factors such as participation in retirement plans, debt, and job tenure, may be contributing to the gender  retirement savings gap.

Women Typically Earn—and Save—Less Than Men

(Fig. 1) Despite some progress, a gender income and savings gap persists.

The gender gap for income and retirement savings has tightened in recent years, but the gap persists .

Source: T. Rowe Price Retirement Savings and Spending Study, 2023.

Lower Income Means Lower Contributions

Although many employers have made progress in addressing the gender pay gap, national averages reflect that women typically earn less than men. In our survey of plan participants, the average income of women was 80% that of men (Figure 1).

The median contribution rate women expected to defer over the next 12 months, including both the employer and employee contribution, is 11% of their income, compared with 12% for men. (T. Rowe Price’s recommended target is 15%, including company match, if available.)

The one-percentage-point difference in the contribution rate seems marginal, but when coupled with a lower income base, the long-term compounded effect can result in dramatically lower retirement account balances for women. Women’s retirement security may be at risk because lower income coupled with higher levels of debt limit women’s ability to save.

Women Carry a Higher Debt Burden

For many retirement savers, paying off debt is a high financial priority that competes with retirement saving. This is particularly true for women. Our analysis found that more women than men held debt across all categories except for home equity loans. The disparity in student loan debt, in particular, is notable. In our study, 22% of men and 31% of women reported that they had student loan debt (Figure 2).

Digging deeper, we find that, of those with student loan debt, the average amount for women was over $30,500, while about $28,250 for men. Having student loan payments may hamper one’s ability to save (Figure 3).

More Women Held Debt in Almost Every Category

(Fig. 2) Significantly more women than men had outstanding student loans.

Women are more likely to have debts related to student loans and car loans, compared to men.

Source: T. Rowe Price Retirement Savings and Spending Study, 2023

Women’s Unique Challenges

Women should take their unique needs into consideration when planning for retirement, and we believe that financial wellness programs offered within retirement plans can be beneficial. You can also seek financial education and guidance from financial institutions, a financial advisor, or a financial coach.

Helping women overcome the retirement savings gap will help them be better prepared for the challenges they may face in retirement. Statistically, women live longer than men. And our research indicates that the majority of women (60%) are divorced, widowed, or never married in retirement versus one-third of men. Taking steps to improve individual finances and becoming comfortable with financial decisions can be empowering and could position women for a more secure retirement.

Women Carry Higher Levels of Student Loan Debt

(Fig. 3 ) Twice as many women carry between $5,000 and $50,000 of student debt compared with men.

Twice as many women carry between $5,000 and $50,000 of student debt compared with men.

Source: T. Rowe Price Retirement Savings and Spending Study, 2023.

Simplify Savings With These 3 Steps

Don’t let a lack of confidence in investing stop you from getting started with saving for your future.

(1) Consider target-date investments.

Many employees today may be automatically enrolled in their workplace plan in an age-based target-date investment. These investments are already diversified for you, and the allocation automatically adjusts over time. If one isn’t sure how to invest, a target-date investment may be a good place to start.

(2) Determine your contribution rate.

To pursue a successful retirement, generally, workers should aim to save at least 15% of their salary, including any employer contributions if available in their workplace plan. That may be a lofty goal for many retirement savers, so consider starting with the minimum needed to take full advantage of any company match, generally 6% of salary.

(3) Step up savings.

If you can’t save enough right away, plan to increase your contribution rate by one or two percentage points each year (Figure 4). Automating annual increases can make upping contributions each year simple. Our analysis indicates, to accumulate enough money to retire, one rule of thumb is to have saved 11 times your preretirement salary at age 65. Many workplace plans offer a service that will automatically escalate your contribution amount each year. Make sure to enroll. You can always opt out if you need to. Remember that you can also supplement your retirement plan savings by investing in a Traditional or Roth individual retirement account (IRA).

Saving Early Makes a Difference

(Fig. 4) Starting early and steadily increasing your contributions up to the 15% target can help you reach your retirement savings goal.

Starting early and steadily increasing your contributions up to the 15% target can help you reach your retirement savings goal.

Assumptions: Examples beginning at age 25 assume a beginning salary of $40,000 escalated 5% a year to age 45 then 3% a year to age 65. Examples beginning at age 30 assume a beginning salary of $50,000 escalated 5% a year to age 45 then 3% a year to age 65. Example beginning at age 40 assumes a beginning salary of $80,000 escalated 5% a year to age 45 then 3% a year to age 65. Annual rate of return is 7%. All savings are assumed to be tax-deferred. Multiple of ending salary saved divides final ending portfolio balance by ending salary at age 65. This example is for illustrative purposes only and is not meant to represent the performance of any specific investment option. The assumptions used may not reflect actual market conditions or your specific circumstances and do not account for plan or IRS limits. Please be sure to take all of your assets, income, and investments into consideration in assessing your retirement savings adequacy.

Make a Plan: Use Available Tools and Resources

Workplace retirement plans often provide financial tools, guidance, and services that employees can use to assess their financial situation and then create a financial plan, which can help build financial confidence. Also, anyone can increase their financial literacy by engaging with these resources that typically include budgeting apps, podcasts, books, online articles, and videos, among other content. Both formal and informal education can empower women to take charge of their financial futures. This guidance may include:

Have a spending plan.

A budget, or spending plan, can provide a framework to track expenses and accommodate savings goals. Understanding how and where money is spent can help identify opportunities to reduce expenses and potentially increase retirement savings.

Focus on debt.

Debt clearly plays a role in lower retirement contribution rates for women. It is important to target the elimination of high-interest debt and explore programs that assist with student loan repayment or forgiveness. To help enable and encourage young people with student debt to start saving for retirement, employers with 401(k) plans, 403(b) plans, governmental 457(b) plans, and SIMPLE IRAs may elect to update their plans so qualified student loan payment amounts would be eligible for any employer match into the employee’s retirement account.

Prepare for the unexpected.

Consider starting an emergency fund with $1,000 and then work to build it to an amount that can cover three to six months’ worth of expenses. The fund can be used for an unexpected bill or to get through a period of financial uncertainty without having to tap credit cards or borrow from retirement savings. A provision of SECURE 2.0 allows employers to offer an “emergency fund” if they so choose. This will allow eligible participants to make limited contributions to an emergency savings account and have access to those funds penalty-free. Contributions would be eligible for any employer match into their retirement account as an extra incentive to save.

Keep retirement savings top of mind.

Having career aspirations and work-life balance is important for many women. If changing jobs to take advantage of higher-earning opportunities, or altering careers for needed flexibility, keep retirement savings on track. When changing jobs, be sure to weigh all your options for your old 401(k) plan. You may also need to revisit your investment options and contribution rates in your new workplace plan. If leaving the workforce and relying on a partner’s income for the household, consider continuing to save in a spousal IRA. In either situation, try to keep your retirement savings intact, as cashing out your old 401(k) may have significant financial consequences.

1Participants in the survey self‑identified their gender. For the purposes of this research, we use the term woman to refer to an adult who lives and identifies as a female and the term man to refer to an adult who lives and identifies as a male.
2Includes current and former workplace plans and IRAs.

Important Information

This material is provided for general and educational purposes only and is not intended to provide legal, tax, or investment advice. This material does not provide recommendations concerning investments, investment strategies, or account types; it is not individualized to the needs of any specific investor and is not intended to suggest that any particular investment action is appropriate for you, nor is it intended to serve as the primary basis for investment decision‑making.

Any tax‑related discussion contained in this material, including any attachments/links, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any tax penalties or (ii) promoting, marketing, or recommending to any other party any transaction or matter addressed herein. Please consult your independent legal counsel and/or tax professional regarding any legal or tax issues raised in this material.

The views contained herein are as of the date written and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

This information is not intended to reflect a current or past recommendation concerning investments, investment strategies, or account types; advice of any kind; or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Please consider your own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.

T. Rowe Price Investment Services, Inc., distributor, and T. Rowe Price Associates, Inc., investment adviser.

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