Women are More Likely Than Men to Face Poverty in Retirement

By: Rachel Kaprielian
July 16, 1998

Rachel Kaprielian represents Watertown and part of Newton in the Massachusetts House. She is also a fellow at the Radcliffe Public Policy Institute.

With the national debate on the future of feminism beginning to escalate, discussion of gender equity should not be limited to the American workplace. Just as today's working women continue to fight for fairness in wages and opportunities, many older women are struggling with inequity in retirement.

Women make up nearly three-quarters of the elderly poor, and one-quarter of all women over the age of 65 live in poverty. Half of all women collecting Social Security rely on it for at least 90 percent of their income, compared with 29 percent for men. Unless inadequacies in the current system are corrected, far too many women will spend their "golden years" in poverty.

Why are women likely to be poorer in retirement than men? Although the laws governing retirement are gender-neutral on paper, today's retirement policies and plans fail to reflect the work patterns and demographics of American women. Women typically live longer than men and thus have a longer retirement to fund. If a woman is divorced or widowed - as half of all women over 65 are - she will usually receive a smaller Social Security check and a smaller pension benefit.

Widows collect approximately half of what their husbands would have collected. The picture is especially bleak for divorced women because most states provide a woman no automatic legal right to half of the pension her husband earned during the marriage. Too often a woman going through a divorce fails to fight for her share of her husband's pension, which is typically a couple's second-largest asset after their home.

Because women still earn only 74 cents to every dollar earned by men, they typically accrue less in Social Security and other pension benefits based on earnings. In addition, women accrue lower retirement benefits because they change jobs more frequently than their male counterparts - around once every four years. The typical private-sector "vesting" period before qualifying to receive benefits through an employer-sponsored pension plan is five years. And women, who continue to be the primary caregivers for children and elderly relatives, take more years out of the paid work force than men.

These career interruptions and changes often translate into a lack of opportunity to participate in employer-sponsored retirement plans. Women are also disproportionately represented in the growth of part-time jobs. In 1993, twice as many women as men - 10.7 million - worked part time. Overall, a scant 15 percent of part-time employees pay into any pension system at all.

The shift to employee-funded defined contribution plans, such as 401(k) plans, is another factor. Workers in previous generations were far more likely to work for only one or two employers in the course of their working lives. In return for this loyalty, many employers provided lavish pensions, often 50 percent of their working salary. Millions of older Americans lived out their retirement with comfort and security.

Then, with the passage of new tax legislation in the 1970s and early 1980s, more and more employers began shifting away from expensive defined-benefit pension plans to tax-advantaged, somewhat more portable, retirement savings plans. These plans, such as the increasingly popular 401(k) plan, are largely funded by employees themselves. In fact, employers are not required to contribute anything at all, and many will contribute to match only a portion of the employee's contribution.

Consequently, lower-wage workers, who have less cash available after meeting basic expenses, are least able to afford to fund such a plan. And these lower-wage workers are disproportionately female: women comprise three-fifths of all service employees, 96 percent of all child-care workers, and 97 percent of receptionists.

Public policies are needed that will buttress personal responsibility by offering programs to shorten time-to-vesting requirements, offer more retirement plan options and venues in which to participate, provide regular, comprehensive education and information about pension and investment plans, ensure the fiscal integrity and stability of the Social Security system, and, perhaps most compelling, work toward a more "user friendly" pension system so that you can "take it with you."

We cannot base today's policies on yesterday's work-family model. In an economy that increasingly relies on human capital, intelligent retirement strategies are as good for America as they are for American women.