Women get the short end of the stick when it comes to retirement.

It starts with differences in earnings and, thus, less money to save for retirement. But other factors come into play: They are more likely to leave the workforce to care for children or parents, and they live longer.

But a Brookings Gender Series paper recommends several policy changes that could address these issues.

“Public policies that aim to boost women’s status in retirement should focus on the ways women participate in the labor market and in wealth accumulation programs as well as on specific retirement programs and benefits,” authors Grace Enda and William G. Gale write in the paper, How Does Gender Equality Affect Women in Retirement?

Lower Earnings

There are several reasons for women earning less over their lifetimes, including interrupted careers due to caregiving or childbearing, or part-time or low-wage work to maintain flexibility for those responsibilities, the paper states.

In fact, “One study found that a woman with one child earns 28% less on average over her career than a woman without children, partially as a result of time out of the work force,” the authors state. “Each additional child reduces average women’s earnings by another 3%. Women are also more likely than men to care for their aging parents — a responsibility that predominantly falls on women over the age of 50. People who leave the labor force early to care for a parent or other elderly relative lose an average of $142,000 in wages.”

The median earnings of women who worked full time were 81% of their male counterparts’ in 2018. When controlling for “age, education, job tenure, occupation, job title, location, and industry, the figure rises to 94.6%,” the authors write.

They credit the difference in those figures to “social constraints and biases” pressuring women into lower-paying jobs.

Taxation also takes its toll, state the authors: ”By taxing the first dollar of a second earner’s income at the same marginal tax rate as the last dollar of the primary earner’s income, the tax system discourages work among married women.”

Social Security Haircut

Due to the reduction in lifetime wages, Social Security benefits are, on average, for women 80% of men’s benefits, the paper states, noting that benefits are determined by a worker’s 35 highest earning years.

The “motherhood penalty” is applicable here as well. According to the authors, the first child reduces Social Security benefits to women by 16%. Each child thereafter increases the gap by 2%.

Defined Benefit or Contribution Plans

Not working or reduction in working also can lead to lower payouts from defined benefit programs, such as pensions, or defined contribution plans, such as 401(k) plans.

Defined benefit plans typically favor long-term workers — a problem when women step out of the workforce for caregiving. The authors found women are two-thirds less likely to be in a program, and those who are receive one-third less in benefits than their male counterparts.

DC plan accounts can be moved between jobs, and workers’ own contributions are immediately vested. That said, Vanguard data showed “that in 2016 the average account balance for women was two-thirds the average for men, but almost all of this difference was the result of wage differences rather than saving behavior given earnings,” the authors state.

Women also tend to live longer than men: In 2020, average life expectancy at age 65 is 21.1 years for women and 18.6 years for men, according to the paper. Further, poverty rates among women rise with age, and women who have children are more likely to be poor than those who don’t. This isn’t true for men, according to the authors.

How to Close the Gap

Policies need to change, Enda and Gale write. Here are their solutions:

  1. Working should be made more attractive to women, and this includes implementing “a robust federal paid family and medical leave program [that] would let people save for retirement and earn Social Security credits while providing care to children and relatives.” This could be done by assigning a value to caregiving work that would be used as part of Social Security benefit calculations.
  2. High-quality child care should be subsidized so women can remain in the workforce.
  3. Revisions to the tax code “to provide a second-earner tax credit or to tax individuals rather than families would improve incentives for married women to work.”
  4. Also, as women make up a majority of those in the workforce not covered by an employer-sponsored plan, adoption of a nationwide automatic IRA program could make them “eligible to participate in a tax-preferred workplace retirement program.”
  5. Finally, the social safety net must be strengthened, the authors state. “For example, boosting Supplemental Security Income benefits to close the gap between Social Security income and the poverty threshold could lift nearly 5 million elderly people, a majority of whom are women, out of poverty.”

Also, increasing support from Medicare and Medicaid for end-of-life care could help widows. In addition, the authors suggest, there should be a reexamination and reform of divorce laws that could help women be more adequately prepared to meet their own financial needs.

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