Retirement Security for Women
Progress to Date and Policies for Tomorrow

1 We thank William G. Gale, Melissa Green, Benjamin Harris, J. Mark Iwry and David John for very helpful comments. Andrew Gisselquist, Catherine Lee, Gina Russell, and Spencer Walters provided outstanding research assistance. We are grateful to Karen Holden, Cathleen Zick, Ethan Lewis and Mark Doms for sharing their data.
2 Recent contributions include Jonathan Skinner, “Are You Sure You're Saving Enough for Retirement?,” Journal of Economic Perspectives, Vol. 21, No. 3, Summer 2007; and Shlomo Benartzi and Richard Thaler, “Heuristics and Biases in Retirement Savings Behavior,” Journal of Economic Perspectives, Vol. 21 No. 3, Summer 2007.
3 Some of the major institutional changes over the first half of the 20th century include increases in the demand for office workers and part-time workers, growth in postsecondary institutions and improvements in home technology that reduced the time spent on housework. See Claudia Goldin, “The Quiet Revolution that Transformed Women's Employment, Education, and Family,” NBER Working Paper, 2006, available at www.nber.org.
4 In a given year, women are more than twice as likely as men to work part-time (BLS, 2004). Among those in the baby boom cohort (born between 1946 and 1960), half of women are projected to have 6 or more years with no earnings compared to a third of men (Chad Newcomb, “Distribution of Zero-Earnings Years by Gender, Birth Cohort, and Level of Lifetime Earnings,” Social Security Administration Research and Statistics Note No. 2000-02, 2000, available at www.ssa.gov).
5 See Francine D. Blau and Lawrence M. Kahn, “Gender Differences in Pay,” NBER Working Paper No. 7732, 2000, available at www.nber.org.
6 GAO, October 2003, “Women's Earnings: Work Patterns Partially Explain Difference between Men's and Women's Earnings.” Available at http://www.gao.gov/new.items/d0435.pdf.
7 There is some evidence that the narrowing wage gap is partly due to the selection of women with higher earnings potential entering the labor force in the 1980s. See Mark Doms and Ethan Lewis, “The Narrowing of the Male-Female Wage Gap”, FRBSF Economic Letters, february 2008, for more discussion.
8 Authors' calculation using the 2004 Survey of Consumer Finances (SCF).
9 Craig Copeland, “Employment-Based Retirement Plan Participation: Geographic Differences and Trends, 2004,” EBRI Issue Brief No. 286, 2005, available at www.ebri.org.
10 Vickie L. Bajtelsmit and Nancy A. Jianakoplos, “Women and Pensions: A Decade of Progress?,” Employee Benefit Research Institute Issue Brief No. 227, 2000, available at www.ebri.org; Peggy D. Dwyer, James H. Gilkenson, John A. List, “Gender Differences in Revealed Risk Taking: Evidence from Mutual Fund Investors,” Economic Letters, pp. 151-58, 2002; Annika E. Sunden, and Brian J. Surette, “Gender Differences in the Allocation of Assets in Retirement Savings Plans,” The American Economic Review, Vol. 88, No. 2, pp. 207-211, 1998; Leslie E. Papke, “How Are participants Investing Their Accounts in Participant Directed Individual Account Pension Plans?,” The American Economic Review, Vol. 88, No. 2, pp. 212-216, 1998; Leslie E. Papke, “Individual financial decision in retirement saving plans: the role of participant-direction,” Journal of Public Economics, Vol. 88, pp. 39-61, 2003.
11 When employee contributions are made to DB plans (which is far less common than employee contributions to 401(k)s), those are immediately vested as well. Employer contributions to DC plans must vest at least as fast as either 100 percent (“cliff vesting”) after 3 years of service or ratably beginning at 2 years and reaching 100 percent vesting after 6 years of service. Employer contributions to DB plans must vest at least as fast as either 100 percent after 5 years of service or ratably beginning at 3 years and reaching 100 percent vesting after 7 years of service. Internal Revenue Code Section 411(a)(2).
12 Hewitt, “Survey Findings: Trends and Experiences in 401(k) Plans”, 2005.
13 Life expectancy from birth is taken from Elizabeth Arias, “United States Life Tables, 2003,” National Center for Health Statistics, 2006, available at www.cdc.gov/nchs.
14 Women fare poorly relative to men if annuity rates are based on age and gender. Currently, not all private annuity contracts use gender in computing annuity rates. If, instead, gender-neutral annuity rates are used, women will fare better than men because of their longer life-span. 401(k) plans are required to use gender-neutral pricing to compute annuity values and this may partly explain the higher annuitization rates among female TIAA-CREF participants than male participants. See John Ameriks, “The Retirement Patterns and Annuitization Decisions of a Cohort of TIAA-CREF Participants,” TIAA-CREF Research Dialogues, No. 60, 1999, available at www.tiaa-crefinstitute.org.
15 401(k) plans have rules that protect the spouse as a beneficiary. If the married worker chooses to take distributions as an annuity, the spouse is protected under ERISA rules regarding spousal annuity. If the worker dies before receiving benefits, the assets automatically go to the surviving spouse. Spousal consent is also required if the married worker decides to select a beneficiary other than the spouse (U.S. Department of Labor).
16 Karen Holden and Sean Nicholson, “Selection of a Joint-and-Survivor Pension,” Discussion Paper No. 1175-98, University of Wisconsin, Institute for Research on Poverty, 1998.
17 Divorce rates more than doubled between 1960 and 1980 and have been gradually declining since 1980. For additional discussion, see The National Marriage Project, The State of our Unions, 2007: Social Health of Marriage in America, Rutgers, The State University of New Jersey, New Jersey, July 2007.
18 As opposed to earlier decades, college-educated women have been marrying at higher rates than their peers since the 1980s.
19 Data for 1960 through 1994: Office of the Assistant Secretary for Planning and Evaluation, U.S. Department of Health and Human Services, 1997, “Trends in the Well-Being of America's Children & Youth.” PF2.2: Percentage of All Births to Unmarried Mothers. Available at http://aspe.hhs.gov/hsp/97trends/PF2-2.htm. Data through 2005: Federal Interagency Forum on Child and Family Statistics, 2007, “America's Children: Key National Indicators of Well-Being, 2007.” Table FAM2.B: Births to Unmarried Women: Percentage of All Births to Unmarried Women by Age of Mother, 1980-2005. Available at http://www.childstats.gov/americaschildren.
20 Allen Dupree and Wendell Primus, Declining Share of Children Lived with Single Mothers in the Late 1990s: Substantial Differences by Race and Income, Center of Budget and Policy Priorities, June 2001, http://www.cbpp.org/6-15-01wel.htm
21 One reason is that unmarried women do not benefit from the economies of scale that make living as a married couple less expensive than living as two separate individuals.
22 Data from Census Bureau at http://www.census.gov/population/socdemo/hh-fam/fm1.xls
23 Kathleen McGarry and Robert F. Schoeni. "Widow(er) poverty and out-of-pocket medical expenditures at the end of life." Journals of Gerontology Series B: Psychological Sciences and Social Sciences, 60(3): S160-S168. 2005.
24 Nadia Karamcheva and Alicia H. Munnell “Why Are Widows So Poor?,” Center for Retirement Research, 2007, available at www.crr.bc.edu.
25 McGarry and Schoeni (2005).
26 Karamcheva and Munnell (2007). Purvi Sevak, David R. Weir and Robert J. Willis, “The Economics of a Husband's Death: Evidence from the HRS and AHEAD,” Social Security Bulletin Vol. 65, No. 3, 2003, available at www.ssa.gov and McGarry and Schoeni (2005) find similar results. Sevak, Weir and Willis (2003) find that among non-poor married couples aged 70 or more, 12 percent became poor after losing a husband. Similarly, Johnson, Mermin, and Uccello (2006) find that a husband's death increases a women’s risk of transitioning into poverty by 36 percent.
27 Figure from Karen Holden and Cathleen Zick (1998), “Insuring against the Consequences of Widowhood in a Reformed Social Security System,” in Framing the Social Security Debate edited by R. Douglas Arnold, Michael Graetz, and Alicia Munnell, Brookings Institution Press and the National Academy of Social Insurance: 165-7, 1998.
28 Blau and Kahn (2000).
29 Timothy M. Smeeding, “Social Security Reform: Improving Benefit Adequacy and Economic Security for Women,” Aging Studies Program Policy Brief, Center for Policy Research, Maxwell School of Citizenship and Public Affairs, 1999, available at cpr.maxwell.syr.edu.
30 The normal retirement age is 65 for those born in 1937 and earlier. It will increase gradually over time. For cohorts born in 1960 and later, the normal retirement age is 67.
31 A 65 year old woman in 2004 could expect to live another 20 years whereas a 65 year old man could expect to live another 17 years (CDC, National Center for Health Statistics, 2006, available at www.cdc.gov/nchs).
32 Courtney Coile, “Retirement Incentives and Couples' Retirement Decisions,” Topics in Economic Analysis and Policy, Vol. 4, Issue 1, 2004.
33 IRA earnings rules are based on household earnings. If the non-caregiving spouse continues to work, the caregiver may continue to be eligible to contribute.
34 The current IRA contribution limits are $4,000 ($5,000 if age 50 and older) for 2007 and $5,000 ($6,000 for age 50 and older) for 2008. After 2008, the contribution limit will be annually indexed in $500 increments, adjusted for the cost-of-living (COL). See http://www.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00000219----000-.html#b_1_A. and Internal Revenue Service publication, http://www.irs.gov/pub/irs-pdf/p590.pdf, for the details of current IRA law.
35 The United Kingdom provides a Carer's Allowance for care-givers who meet certain requirements.
36 Under current Medicaid rules, transfers made within 60 months of applying for Medicaid assistance will delay or disqualify eligibility. The delay varies with the value of the transfer (assuming the applicant also meets the income and needs criteria).
37 See Pamela Herd, “Crediting Care of Marriage? Reforming Social Security Family Benefits,” Journal of Gerontology: Social Sciences, Vol. 61B no. 1, pp. S24-S34, 2000; and Howard Iams and Steven Sandell. “Changing Social Security Benefits to Reflect Child-Care Years: A Policy Proposal Whose Time has Passed?,” Social Security Bulletin, Vol. 57, no. 4, pp. 10-24, 1994.
38 See J. Mark Iwry, William G. Gale, and Peter R. Orszag, "The Potential Effects of Retirement Security Project Proposals on Private and National Savings: Exploratory Calculations," (Retirement Security Project Policy Brief No. 2006-2, November 2006; available at www.retirementsecurityproject.org). The study estimates that the automatic 401(k) could bring about a net increase of $44 billion a year in national saving.
39 Brigitte Madrian and Dennis Shea, "The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior," Quarterly Journal of Economics 116, no. 4 (November 2001):1149-87; and James Choi and others, "Defined Contribution Pensions: Plan Rules, Participant Decisions, and the Path of Least Resistance," in Tax Policy and the Economy, Vol. 16, edited by James Poterba (MIT Press, 2002), pp. 67-113. Related approaches have also proven effective, but generally are less powerful. One such approach is to require employees to make an explicit election so that inertia does not prevent employees from participating or lead them to contribute less than they would if they were required to choose. Another approach presents employees with a presumptive contribution rate packaged together with an investment option - not as a default, but as an easy choice employees can make by checking a single box.
40 Hewitt Associates, Trends and Experiences in 401(k) Plans 2005 survey. In 2005, the proportion was 75 percent. More recent data are available from the 2007 Hewitt survey.
41 Between 65-87 percent of new plan participants save at the default contribution rate. This percentage declines slowly to 40-54 percent after two years and to about 45 percent after three years (James Choi, David Laibson, Brigitte Madrian and Andrew Metrick, "For Better or For Worse: Default Effects and 401(k) Savings Behavior," in Perspectives on the Economics of Aging, edited by D. Wise, University of Chicago Press, 2004, pp. 81-121).
42 Richard Thaler and Shlomo Benartzi, "Save More Tomorrow: Using Behavioral Economics to Increase Employee Saving," Journal of Political Economy 112, no. 1, pt. 2 (2004), S164-S187.
43 William G. Gale and J. Mark Iwry, "Automatic Investment: Improving 401(k) Portfolio Investment Choices," (Retirement Security Project Policy Brief No. 2005-4, May 2005; available at www.retirementsecurityproject.org); William G. Gale, J. Mark Iwry, Alicia H. Munnell, and Richard H. Thaler, "Improving 401(k) Investment Performance," (Center for Retirement Research Issue Brief No. 2004-26, December 2004; available at www.bc.edu/crr); and J. Mark Iwry, "Promoting 401(k) Security," (Urban-Brookings Tax Policy Center, September 2003; available at www.taxpolicycenter.org).
44 William G. Gale and Michael Dworsky, "Effects of Public Policies on the Disposition of Lump-Sum Distributions: Rational and Behavioral Influences," (Center for Retirement Research Working Paper No. 2006-15, August 2006; available at www.bc.edu/crr).
45 See William G. Gale, J. Mark Iwry and Spencer Walters, “Retirement Saving for Middle- and Lower-Income Households: The Pension Protection Act of 2006 and the Unfinished Agenda” (Retirement Security Project Policy Brief No. 2007-1, January 2007) for additional details.
46 Wells Fargo, “Strategic Initiatives in Retirement Plans” 2007 Survey Analysis.
47 According to the 2007 Wells Fargo Survey, 21 percent of employers that offer automatic enrollment also automatically escalate contributions. According to the Hewitt Trends and Experience in 401(k) Plans 2007 Survey, 28 percent of employers that automatically enroll participants also automatically escalate contributions.
48 Gale, Iwry and Walters (2006) set out the “first generation” - “second generation” automatic 401(k) concepts and discusses them more fully.
49 Among wage and salary workers ages 18-64, an estimated 60.5 workers do not have access to employer-sponsored retirement plans. Authors' calculation using the March 2006 CPS data.
50 Craig Copeland, "Employment-Based Retirement Plan Participation: Geographic Differences and Trends, 2005: Employee Benefit Research Institute Issue Brief No. 299," November 2006, Figure 1, p. 7. An additional 16 million workers either are not eligible for their employer's plan or are eligible but fail to participate. Quantitatively similar but updated figures for 2006 are available in the Employee Benefit Research Institute Issue Brief 311.
51 See J. Mark Iwry and David C. John, "Pursuing Universal Retirement Security Through Automatic IRAs," (Retirement Security Project Policy Brief No. 2007-2, April 2007); J. Mark Iwry and David C. John, "Pursuing Universal Retirement Security Through Automatic IRAs," Testimony before the Senate Finance Committee, June 29, 2006. These and related publications are available at www.retirementsecurityproject.org.
52 S. 1141 and H.R. 2167.
53 For a detailed description of the automatic IRA, see J. Mark Iwry and David C. John, "Pursuing Universal Retirement Security Through Automatic IRAs," (Retirement Security Project Policy Brief No. 2007-2, April 2007).
54 J. Mark Iwry, William G. Gale, and Peter R. Orszag, "The Saver's Credit," (Retirement Security Project Policy Brief No. 2005-2, March 2005; available at www.retirementsecurityproject.org); and J. Mark Iwry, William G. Gale, and Peter R. Orszag, "The Saver's Credit: Issues and Options," (Tax Policy Center Tax Notes, May 3, 2004; available at www.taxpolicycenter.org).
535 The explicit 50 percent credit is an implicit 100 percent match. For an example, consider a couple earning $30,000 who contributes $2,000 to a 401(k) plan. The Saver's Credit reduces that couple's federal income tax liability by $1,000 (50 percent of $2,000). The net result is a $2,000 account balance that costs the couple only $1,000 after taxes (the $2,000 contribution minus the $1,000 tax credit). This is the same result that would occur if the net after-tax contribution of $1,000 were matched at a 100 percent rate: the couple and the government each effectively contribute $1,000 to the account. While taxpayers should respond the same to equivalent implicit and explicit matches, empirical research provides evidence to the contrary. For a detailed discussion, see Esther Duflo, William Gale, Jeffrey Liebman, Peter Orszag, and Emmanuel Saez, "Saving Incentives for Low- and Middle-Income Families: Evidence from a Field Experiment with H&R Block," Quarterly Journal of Economics, Volume 121, Issue 4, 2006.
56 For a detailed discussion of this issue, see Zoë Neuberger, Robert Greenstein, and Eileen P. Sweeney, "Protecting Low-Income Families' Retirement Savings: How Retirement Accounts Are Treated in Means-Tested Programs and Steps to Remove Barriers to Retirement Saving," (Retirement Security Project Policy Brief No. 2005-6, June 2005; available at www.retirementsecurityproject.org).
57 In fiscal year 2004, individual income tax refunds amounted to $228 billion and went to 106 million out of a total of 131 million individual income tax returns (IRS Databook FY 2004, publication 55b, tables 1,2,8,9).
58 Hersh M. Shefrin and Richard H. Thaler, “Mental Accounting, Saving, and Self-Control,” in Choice Over Time, edited by G. Lowenstein and J. Elster (New York City: Sage Foundation, 1992).
59 Steven Venti and David Wise, “Aging and Housing Equity: Another Look,” National Bureau of Economic Research Working Paper No. 8606 (November, 2001).
60 Although the market for reverse mortgages has grown rapidly over the last few years, it still remains quite small. Davidoff and Welke (2005) estimate that less than one percent of eligible homeowners purchase reverse mortgages, even though there are a large number of older homeowners who are housing-rich and income-poor (Thomas Davidoff and Gerd Welke, “Selection and Moral Hazard in the Reverse Mortgage Market,” Haas School of Business, University of California Berkeley working paper, October, 2005). There is mixed evidence of adverse selection and moral hazard in the market. Potentially, the presence of Medicaid may undermine demand. Andrew Caplin, “Turning Assets into Cash: Problems and Prospects in the Reverse Mortgage Industry,” in Innovations in Retirement Financing, edited by Olivia S. Mitchell, Zvi Bodie, P. Brett Hammond, and Stephen Zeldes. (University of Pennsylvania Press, 2000) chapter 11.
61 David S. Johnson and Timothy M. Smeeding, “Who are the Poor Elderly? An Examination Using Alternative Poverty Measures,” Unpublished manuscript, 2000. The Census Bureau also calculates an adjusted poverty rate by age and finds that, in 2005, overall elderly poverty would have risen from 10.2 percent to 16.4 percent if MOOP spending were deducted from family income (Census Bureau, Poverty Measurement Studies and Alternative Measures, 2007).
62 Berhanu Alemayehu and Kenneth E. Warner, “The Lifetime Distribution of Health Care Costs,” Health Services Research, Vol. 39, Issue 3, pp. 627-642, 2004.
63 Craig Caplan and Normandy Brangan, “Out-of-Pocket Spending on Health Care by Medicare Beneficiaries Age 65 and Older in 2003,” AARP Research Report, 2004, available at www.aarp.org.
64 Peter Kemper and Christopher Murtaugh, “Lifetime Use of Nursing Home Care,” New England Journal of Medicine, Vol. 324, pp. 595-600, 1991.
65 Unmarried women include never married, divorced, and widows. William D. Spector, John A. Fleishman, Liliana E. Pezzin, Brenda C. Spillman, “The Characteristics of Long-Term Care Users”, AHRQ Research Report. AHRQ Publication No. 00-0049, 2001, available at www.ahrq.gov.
66 The average cost for a private room was $75,000 annually, while an average semi-private room cost $67,000 (“The Metlife Market Survey of Nursing Home & Home Care Costs”, MetLife Mature Market Institute, 2006, available at www.metlife.com). Length of stay data are from the 1997 National Nursing Home Survey (National Center for Health Statistics, 1997, available at www.cdc.gov/nchs).
67 Among full-year residents in 1996, Medicaid financed 58 percent of expenses and 33 percent was paid out of pocket (total expenses for this group amounted to $36,368). Medical Expenditure Panel Survey Research Findings #13: Expenses and Sources of Payment for Nursing Home Residents, 1996, available at www.meps.ahrq.gov.
68 Individuals ages 70 and older are observed between 1993 and 2002 and median wealth for unmarried and married women are measured in 1993. During the same period, real median wealth increased by 19.7 percent for individuals who did not receive nursing home care. See Richard W. Johnson, Gordon B.T. Mermin, and Cori E. Uccello, “When the Nest Egg Cracks: Financial Consequences of Health Problems, Marital Status Changes, and Job Layoffs at Older Ages,” Urban Institute, 2006, available at www.urban.org.
69 The statutory asset limits for eligibility are $2,000 for a single individual and $3,000 for a couple. At these levels, individuals must virtually deplete their resources before they can qualify for Medicaid nursing home assistance. Some states have exceptions that disregard certain assets (such as, assets used to purchase an irrevocable Medicaid annuity) and these exceptions raise the effective asset limits. Although the effective asset limits are substantially higher in a small number of states, even with the exceptions, the effective asset limits are still relatively low for the majority of states.
70 Evidence suggests that more risk-averse individuals or individuals who are at greater risk of needing nursing home care are more likely to buy LTC insurance. See Amy Finkelstein and Kathleen McGarry, “Multiple dimensions of private information: evidence from the long-term care insurance market,” American Economic Review, Vol. 96 No. 4, pp. 938-958, 2006.
71 Jeffrey Brown and Amy Finkelstein, “Why is the Market for Long-Term Care Insurance so Small?,” Massachusetts Institute of TechnologyWorking Paper (February 2007).