There is a major gap between what millennial men and women need to save for retirement, even assuming they were both paid the same for the work they do, according to the 2016 Gender Gap in Financial Wellness Study put out by Financial Finesse.
“Although we assume pay parity for the typical 25-year-old, there is a 28% gap in the additional retirement savings needed to cover estimated retirement expenses primarily due to women’s greater life expectancy,” says Liz Davidson, CEO and founder of Financial Finesse. That doesn’t take into account the fact that many women leave the workforce at different points in their lives and the impact those sabbaticals can have on their future savings.
“When you add a career break on top of that, the gender gap in financial security is huge. Women need to know this so they can take steps to minimize the financial impact of important life decisions,” she says.
The study found that women who take breaks early on in their careers — to have a baby or take care of a loved one — face a potential retirement shortfall of nearly $1.3 million.
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“The reality is women are more at risk because of longer lifespans and because of the life choices, at least right now, they are more likely to make than their male counterparts,” Davidson says. “That’s the situation. It doesn’t mean every woman is more at risk than every man. Everyone is different.”
Employers are stepping up to the plate when it comes to helping employees close the gender gap in financial wellness, but Financial Finesse points out that women need to save an estimated 12.6% of pay to be on track to meet estimated average expenses in retirement.
Because women are more at risk, the key for employers and women is to be more aware of it and take preventative action, she adds.
“You can complain about it or do something about it. It is what it is,” Davidson says. It is important for women to understand how important self-sufficiency is to them. Once they understand the gender gap, they are more likely to save more and invest more aggressively.
The demands of diversity
It is also important for employers to understand that is a dynamic, according to Davidson. Targeting education around different segments of their workforce is important, especially targeting women and millennials.
Many large employers are looking for ways to foster a more diverse workforce, including more women. As part of that effort, they need to create a structure that works for the company and its employees.
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“As part of that, we are starting to see more planning, equipping women with information and guidance to help them plan for the career break they may decide to take, so those career breaks don’t jeopardize their financial security,” Davidson says. “Every man, every person should be able to craft a life they want to have, within reason.”
Millennials are at the beginning of their careers so it is most important that they take these things into account when planning for their futures, she says.
Engaging millennials
As millennials because the largest percentage of the workforce in America, employers are grappling with how best to engage them.
“How do we engage our millennial population? We’re hearing more about turnover being a challenge. How do you create this work environment and culture that really engages your top talent and, in many cases, the focus, with technology, is often among millennials and looking to them as future leaders when they plan for the future,” Davidson says.
Millennial women and their employers have time to make progress on the gender financial wellness gap.
“The reality is it is more expensive to be a woman. It just is, and it is knowing that and planning for it,” she says.
“We help them understand that even if all else is equal, healthcare costs and life expectancy will likely be higher, so they will have to save more for retirement,” says Kelley Long, a resident financial planner with Financial Finesse and lead researcher on gender issues for the firm’s Think Tank. “If they’re going to take a career break, they need to prepare for it as soon as possible.”
According to Long, a recent Wells Fargo survey found that 44% of millennial women have not started saving for retirement, yet many expect to experience a break in pay at some point in their career.
“The gender gap in retirement preparedness is real,” says Davidson. “Employers are at the forefront of this issue, which is why they are uniquely suited to address it. They can help women — especially millennial women — close this gap by offering early financial mentorship to help them prepare for what might be ahead so they can make life choices without jeopardizing their retirement security.”
