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Stephanie Richman at EP Wealth Advisors

Retirement Planning > Saving for Retirement

Good Advisors Can’t Ignore the Inequities Following Women Into Retirement

By John Manganaro

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What You Need to Know

  • Research shows the wage gap between men and women doing equal work has also created a massive retirement-readiness gap.
  • Stephanie Richman at EP Wealth Advisors says this challenge, while not solvable by financial advisors alone, must factor deeply into the planning process.
  • In light of the readiness gap, decisions such as Social Security claiming for women and married couples take on even greater importance.

The wage gap is a barrier late-career women have faced their whole lives, and it especially affects them as they approach and plan for the transition to retirement.

In fact, according to one study by the National Women’s Law Center, a 20-year-old woman starting full-time work can expect to earn more than $400,000 less over a 40-year career compared to a man in the same position. Should her male counterpart retire at age 60 after 40 years of work, this wealth gap implies she would need to work nine additional years — until age 69, which is past Social Security’s full retirement age — to close this lifetime wage gap.

Stephanie Richman, regional director of Northern California and the East Bay at EP Wealth Advisors, says this unjust wage differential results in significantly less retirement security for women, and the situation is particularly grave for women of color compared to white, non-Hispanic men.

In a new conversation with ThinkAdvisor, Richman pointed to the gender-based retirement gap as one of the broadest and gravest financial challenges facing the American public in 2023, and she encourages financial advisors to consider how it could be playing out in the lives of their clients and in their own communities.

While a solution to the wage gap will need to be holistic in nature, involving efforts across the board by individuals, companies, institutions and government, Richman says financial advisors have a lot to contribute — starting with their ability to educate their clients and communities about the issue and how it impacts people beyond their time in the workforce.

Shocking Levels of Inequity

According to the National Women’s Law Center, over a 40-year career, Black women typically lose $941,600 in relative earnings compared to white, non-Hispanic men, while Native American women typically lose $1.35 million and Latina women typically lose $1.12 million.

Additionally, while Asian women have a smaller gap in lifetime earnings ($240,280) compared to other women of color, the gap remains substantial, and many communities of Asian American and Pacific Islander women experience much larger wage gaps than is reflected in this overall figure for Asian women.

As Richman points out, these staggering dollar figures become all the more concerning when one frames the issue in terms of excess years required in the workforce. Assuming the same aforementioned conditions, Black women would have to work nearly 25 years longer than white, non-Hispanic men in order to close the lifetime wage gap.

Native American women would have to work 30 years longer, and Latinas would have to work 33 years longer. This implies that Black women, Native American women and Latina women all must work well into their 80s or 90s to catch up to what a white, non-Hispanic man has made by age 60. That is, they must delay their retirement beyond their own life expectancy.

What Advisors Can Do Today

Reflecting on the role that financial advisors can play in helping to start to close the gap, Richman says one place to start is with the fundamentals.

“We often find that women might express a higher degree of concern about taking excessive risk in the markets,” Richman observes. “As financial advisors, it is important for us to educate all our clients about identifying the right amount of risk to take, and highlighting that risk comes in different forms, including longevity risk.”

As Richman explains, female clients face increased risk with respect to their greater life expectancy and the commensurate challenges presented by inflation. Given that they are starting with a smaller nest egg and that they can expect to live longer, this may imply a higher level of market risk-taking is warranted, or in other cases, it may require challenging but much-needed conversations about budgeting and lifestyle.

“One helpful tool today is that bond yields look much more attractive, and that’s exciting, because it can help us build solid income plans while keeping risk under control,” Richman says. “Still, all clients who are in the middle class or even the mass-affluent need to understand that equities are likely going to have a pretty big role to play in their retirement portfolio.”

Another fundamental planning principle to consider is the tendency of all clients (male, female or any other gender identity), to let fear get the better of them when markets really get rough, as they did in 2022.

“Every client is going to feel that pull of wanting to react emotionally and jump out of the market at just the wrong time,” Richman says. “Younger and less experienced folks may be the most prone to try and time the markets and jump in and out, but it also affects retirees and near-retirees. So, reinforcing these fundamentals is critical.”

The Role of Social Security and Medicare

When it comes to addressing the needs of married women and couples entering retirement, Richman says this is another area where advisors can do a lot of good in the present moment.

Simply put, many couples make mistakes in the Social Security claiming process and in selecting their approach to Medicare coverage that result in women facing unnecessary added financial hardships, especially in cases when their spouse dies earlier than expected.

Richman says one foundational piece of knowledge for women and couples to understand is that spousal benefits and survivor benefits are not the same thing, and there are critical differences to understand between the two benefits. In the most basic terms, the spousal benefit is the benefit that a lower-earning spouse is entitled to collect while their higher-earning spouse is still alive, whereas the survivor benefit is an entirely different amount that kicks in once one spouse dies.

Each benefit has its own calculation formula and rules, all of which should be studied by financial advisors and their clients. Additionally, couples often assume that survivor benefits do not require much advanced planning to optimize, which is not true.

Another common issue is a conviction among client couples that Social Security benefits are earned on an individual basis, and therefore claiming decisions should only consider the individual. In reality, the opposite is true, given the importance of spousal and survivor benefits. In fact, in most scenarios, it makes sense for the higher earner to delay their claiming until age 70, even if their own personal projected longevity is not great.

(Pictured: Stephanie Richman)

John Manganaro

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