The $1 million gender wealth gap

It is well-documented that most women earn less than men, averaging 84 cents to every $1 paid to a man. What is less obvious is the lifetime impact of that wage gap when combined with career interruptions.

Many women experience lasting financial consequences when they take time off to provide care for young children or aging parents. About one-third of them return to the workforce in less demanding jobs with lower pay, according to a new Merrill Lynch study conducted in partnership with Age Wave.

The cumulative effect is a gender wealth gap — the difference between men and women’s financial resources across their lifetimes, including earnings, investments, retirement savings and additional assets. As a result, when a woman reaches retirement age, she may have accumulated as much as $1 million less than a man who was continuously in the workforce, according to the study, “Women and Financial Wellness: Beyond the Bottom Line.”

The Merrill Lynch/Age Wave study of more than 3,700 American adults found that 70% of women believe that men and women have a fundamentally different life path, reinforcing the need to better understand women’s financial lives.

While women care about the performance of investments, 77% of those surveyed said they see money in terms of what it can do for themselves and their families. Two-thirds look to invest in causes that matter to them.

The study also found that women are confident in most financial tasks such as paying bills (90%) and budgeting (84%), but their confidence drops significantly when it comes to managing investments. Only about half (52%) of women say they are confident in managing investments versus 68% of men. Millennial women were the least confident, at 46%.

When women who do invest, their financial confidence soars. More than three-quarters (77%) of women who invest feel they will be able to accumulate enough money to support themselves for life.

“As women are at a tipping point to achieve greater financial empowerment and independence, it is even more essential that we support women in helping them pursue financial security for life,” said Lorna Sabbia, head of retirement and personal wealth solutions at Bank of America Merrill Lynch. “This includes encouraging women to invest more of their assets, save earlier for retirement and pursue financial solutions that closely align to their personal values and life paths.”

Longevity is an added challenge for women’s retirement planning. Because they live on average five years longer than men, women are likely to have higher health care costs in retirement. More than 80% of centenarians are women. While 64% of the women in the Merrill Lynch/Age Wave survey said they would like to live to 100, few feel financially prepared to do so.

In addition to the gender wealth gap, there is also a marriage gap. More than one out of every two women in the United States is unmarried, including those who are divorced, separated, widowed or never married. Single women are one of the fastest growing demographic groups in America, but when it comes to finances, they have a lot of catching up to do.

Single retirees, particularly single women, feel less confident about their financial security in retirement and are more concerned about outliving their savings than those who are married or have partners, according to a new report from the LIMRA Secure Retirement Institute, a research arm of the insurance industry.

“Because essential living expenses are proportionally higher for single-person households than couples’ expenses, the risk of running out of money is greater for all single people as they age,” said Jafor Iqbal, assistant vice president at LIMRA Secure Retirement Institute.

The LIMRA study of 1,130 single retirees found that those who own an annuity are more likely to believe that they can achieve their desired lifestyle in retirement and that their savings will last if they live to be age 90. The study also found that single retirees who have a relationship with a financial adviser are significantly more likely to own an annuity.

Six in ten single women who work with an adviser own an annuity and nearly half of single men who work with an adviser own an annuity — double the rate of single retirees who don’t work with an adviser.

“Our findings present an opportunity for advisers,” Mr. Iqbal said.

“We know that formal retirement income planning is linked with improved financial outcomes, yet two-thirds of single retirees who work with an adviser do not have a formal retirement plan,” he said. “We recommend advisers engage their clients — married or single — and begin the process of developing a formal retirement income plan.”