Although women must work two years longer than men to be retirement ready, they still retire with 30 per cent less wealth than their male counterparts, according to a Mercer Canada retirement readiness report.
The report found women enter retirement with lower retirement savings than men and they also must work longer to achieve retirement readiness. Recently retired women have, on average, an account balance approximately $30,000 lower than men, who typically retire with an account balance of approximately $100,000. This 30 per cent gap is largely due to a lower overall savings rate. Mercer’s research on savings rates shows women, on average, experience a savings rate gap of nearly one per cent (0.81 per cent), which means women need to work two years longer than men to be ready for retirement.
There are several factors contributing to this disparity, noted the report, such as a persistent gender pay gap and the fact women have a higher likelihood of experiencing interruptions during their career, a phenomenon that has been particularly acute throughout the coronavirus pandemic. Each interruption of a woman’s career — for example, having to take time off to be caregiver for a relative or for children in the virtual-learning environment — compounds this disadvantage, making it more likely she’ll outlive her savings, noted the report.
“Despite doing everything right relative to their savings, in our analysis we found that due to structural factors, women are retiring less wealthy than men,” said Jillian Kennedy, a partner at Mercer and leader of the firm’s financial wellness business, in a press release. “It’s incumbent on employers to do everything in their power to resolve the retirement savings gap.”
An additional Mercer analysis showed, over a five-year period, women’s investment performance equalled — or exceeded — men’s. In every age group examined, despite lower savings rates, accounts held by women showed slightly higher average returns (0.1 of a percent). This is likely due to women’s greater affinity for diversified solutions within workplace retirement benefit programs — again observed across age groups — the analysis concluded.
Together, the savings gap and slightly superior investment performance highlight the fact the gap in women’s retirement savings cannot be understood in isolation, noted Mercer’s report. It suggests employers need to see the broader structural factors at play, such as persistent pay and workplace inequities. Employers can play a large role in reducing structural barriers, beginning with conducting a retirement readiness diagnostic, which examines an organization’s workforce’s retirement readiness holistically among men, women, young and old, said the report.
Employers should also consider a plan design review to ensure their plans account for the realities of decumulation in an uncertain economic future, added the report. They should also invest in proactive communication to build awareness of the savings tools available to employees, including any employer-matching benefits, through all-staff meetings, regular e-mail cadence, one-on-one meetings with managers and a digital-first approach. Another strategy employers can take, the report suggested, is to put common-sense investment policies into place, like defaulting their employees into target-dated funds, or other investment solutions that meet employee needs.
“Financial wellness means giving employees both the knowledge and the ability to chart their financial future,” said Kennedy. “It’s not just the right thing to do — it’s the smart thing to do. Organizations that invest will see the impact to their productivity, their workforce morale, and ultimately, their bottom line.”