How the gender pay gap affects retirement for women

Annuities can help provide more lifetime income

By Carla Urbaszewski

American women working and saving for retirement face unique challenges. Despite women controlling one third of total U.S. household financial assets ($10.9 trillion)¹ and comprising 47% of the workforce,² they continue to earn lower wages than men. A recent study reported women make 82 cents for every dollar earned by men—a rate that hasn’t meaningfully changed in two decades.³ In 2002, women made 80 cents for every dollar earned by men.³

The reasons for the gender pay gap have also changed very little over time. Jobs that have been historically relegated to women, or are female-dominated fields, tend to offer lower pay than those that have been dominated by men. Many women also leave the workplace to become caregivers, and therefore typically, tend to work fewer hours than men do. Women on average have nine years’ less earned income than their male counterparts;² a factor which also can affect their Social Security benefits.

Women who earn less than their male counterparts often continue to feel the impacts of the gender pay gap far into their retirement years. In 2022, the average social security payment to a male retiree was $2,020 per month, while the average female retiree received an average payment of $1,637.⁴

Despite the challenges created by the gender pay gap, women may take proactive steps to plan for their retirement. Talk to a financial professional and start with the basics:

• Calculate the amount of money needed in retirement. Start building a post-retirement budget considering expenses for housing costs, transportation, healthcare, food, personal insurance and retirement expenses.
• Know what funding sources will be used for retirement income. Start working with a financial professional on an income plan for retirement. Consider Social Security, current 401(k) plans, investment accounts, bank accounts, etc.
• Get a Social Security estimate using the free tool on the Social Security website. Knowing the expected benefit is an important part of the planning conversation.
• Consider a source of guaranteed lifetime income — with opportunities for additional benefits. Some women nearing retirement may want to incorporate an annuity into their retirement savings plan. 

Annuities are often designed to provide guaranteed income which is especially important for people who don’t think their Social Security benefits will be enough to meet their basic expenses in retirement. Much like Social Security, an annuity may help clients replace their paycheck, help cover certain essential retirement expenses, and help them maintain a desired lifestyle. 

Women who want to delay claiming Social Security benefits to receive their maximum benefit amounts may also want to include an annuity their plans. An annuity can create a steady stream of income and help bridge the income gap between leaving a job to full Social Security age.

Annuities also offer other important benefits such as tax-deferral. Taxes are generally not due on earnings until withdrawals are taken so savings may accumulate more quickly in an annuity than in a taxable account where taxes are typically due every year income is earned.

There are also fixed annuities that combine traditional features with benefits available for qualified long-term care (LTC) costs. Since women, on average, live seven years longer than men,⁵ they are more likely to need long-term care and pay more in LTC expenses.⁶ An annuity with LTC benefits may help them address these challenges. Plus, many of these annuities offer simplified underwriting and the ability to pass on unused funds through a death benefit in the event they aren’t needed for LTC expenses.

Talk to your financial professional to learn more about annuities and how they may fit in your retirement plan.