What is the Gender Retirement Gap?

When planning for retirement, women face specific challenges that men do not. The result is that women tend to retire with less money in their TFSAs or RRSPs than men. The gender retirement gap isn’t due to any single variable, but a perfect storm of factors that together result in women retiring with far less money than they’ll need to live comfortably in retirement. Let’s take a look at a few of the reasons why a gender retirement gap exists:

Women earn less

While the gender wage gap is slowly narrowing, even today, women are consistently out-earned by their male counterparts throughout their careers. According to a 2018 Statistics Canada report, women take home just $0.87 for every dollar earned by their male coworkers. A smaller pay cheque means less money to send towards retirement after basic needs (like food and housing) are met.

Women tend to play it safe

Women also tend to invest more conservatively than men. While it’s common for men to adopt a DIY approach and choose to manage their investments themselves using a discount brokerage, women tend to be more conservative with their money. Instead, they often favour high-interest savings accounts and guaranteed investment certificates (GICs). While these can be great short-term saving strategies, these investment options offer a lower return, stunting the growth of their money over the long term.

A good alternative to these low-return investment tools is to move their money to a robo-advisor, where it can grow faster without paying the high fees associated with mutual funds or the hours of research associated with a DIY approach. More on this later.

Women live longer

Women are earning less, saving less, and choosing investment strategies that yield less. But because women generally live longer than men, they need to squirrel away more money in their nest eggs. According to Statistics Canada, women live four years longer than men on average, and those extra years are also some of the most expensive in their lifetime. Four years longer doesn’t seem that long, but if you assume a retirement age of 65, that’s 28% more years spent in retirement.

Women are more likely to leave the workforce

Women have made great strides towards equality in the workforce, but when it comes to taking time off to care for children and elderly relatives, they still tend to bear the brunt of the workload. Women will spend on average 10 years less in the workforce than men, which means ten fewer years to contribute to RRSPs or pension plans.

Strategies for tackling the Gender Retirement Gap

With 28% of senior women in Canada living in poverty, the gender retirement gap isn’t just a cute term — it’s a real threat that must be planned for and mitigated. Here’s what you can do to make sure you aren’t on the losing end of the gender retirement gap.

Spend less time out of the workforce

When deciding whether or not to leave the workforce for either a brief time or an extended period, consider how that time away from your career will affect your income and retirement contributions, both in the short and long term. Where possible, such as for parental leave, consider sharing your parental leave with your spouse (if you have one) so that you can return to work sooner and resume saving for retirement.

Open a Spousal RRSP

The decision to leave the workforce is a personal one, and there are other factors to consider beyond the financial implications. If you do choose to leave the workforce for an extended period, your partner can choose to contribute to a spousal RRSP. A spousal RRSP will give your spouse the tax break during the year they contributed but will be available to you in retirement.

Spousal RRSPs can also be useful to minimize your taxable income in retirement, by spreading your retirement nest egg across two accounts. You can easily open a Spousal RRSP with a robo-advisor or online brokerages.

Investing more aggressively

If you’ve been keeping your retirement savings in high-interest savings accounts and GICs, it’s time to rethink your strategy and choose a more aggressive investment strategy. If you’re new to investing, the easiest way to get started is to sign up for one of the best robo-advisors in Canada.

Robo-advisors might sound like an intimidating term, but these companies make use of automated technology and intuitive questionnaires to design a portfolio that matches your risk tolerances and is optimized for your investment horizon. Most robo-advisors, like Wealthsimple, in Canada use ETFs to build your portfolio, and they rebalance automatically on your behalf. All you need to do is sign up and start making contributions.

If you’re comfortable with DIY investing and want to save money on fees, think about using an online brokerage. Although they don’t offer any financial advice, online brokerages charge almost no fees and you can build your own portfolio. Some even offer zero-commission trading. With self-directed investing, you are the boss and fully in control of your money.

More: The evidence-based guide to successful investing

Start saving 18% of your income

Saving 10% of your income won’t cut it, but how much is enough? A study published by Diane Garnick suggests that 18% is a better number for women, but that number might seem steep, especially if you’re currently struggling to make ends meet.

Don’t let that high number intimidate you. The important takeaway is that you should save as much as you can and make incremental improvements when your budget and your income allow. By slowly ramping up over time, you’ll reach a savings rate that will ensure you are not one of the many senior women that end up in poverty, and instead, you’ll secure your financial future and retire comfortably.

More: How to automate your savings

The bottom line

Yes, the gender retirement gap is real and it’s yet another hurdle for Canadian women in the struggle for gender equality. But don’t stress too much: as long as you’re aware that it exists, and you use smart investing strategies to take on the challenge, your nest egg will be ready to hatch in your golden years. Just remember, knowledge is power and now that you’re “in the know,” you can overcome this hurdle!

More: How women can grow their wealth (in an unequal society)

Jordann Brown is a freelance personal finance writer whose areas of expertise include debt management, homeownership and budgeting. She is based in Halifax and has written for publications including The Globe and Mail, Toronto Star, and CBC.


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