On average, Americans face a retirement shortfall, especially women. How bad? According to Vanguard, in 2022 the average American had saved $141,542 for retirement. While some debate whether it’s a reasonable estimate, the 4% rule says you can spend 4% of your retirement savings annually. Applying the 4% rule to that average balance results in about $5,660 per year or about $470 per month. Adding Social Security benefits on top of that still doesn’t leave the average American well-positioned for retirement. What’s even scarier is that the median 401(k) balance cited in that study was $35,345. In case you don’t remember, the median represents an amount that half the population exceeds, and the other half falls short of.
The Motherhood Penalty
Unfortunately, women are in even worse shape than men on nearly every important metric. Why? For one, women face the motherhood penalty. On average, women earn less than their male counterparts. They also potentially are part of the workforce for fewer years. The combination of these factors often leads to lower retirement savings. Women have longer life expectancies. Plus, they are more likely to act as caregivers than men.
For more thoughts on the motherhood penalty as well as the impact of living longer, you can review the blogs I’ve linked. You can also download a copy of my Financial Topics for Women e-book using this link.
What Can Women Do to Overcome a Retirement Shortfall?
1. Save more (and start as soon as you can).
I know. Easier said than done. But increasing how much of your income you save can make a difference. It can help you compensate for any short- or long-term absence from the workforce. Say you want to save $1 million for retirement. Assume annual growth of 6%. In a 40-year career, you should save $502 per month. If you have a 30-year career, you will need to save $996 per month. If you only work for 20 years, your monthly savings need to increase to $2,164.
When it comes to savings, I also recommend that you “Pay Yourself First!”
2. Build a family budget.
I understand that some consider budget a four-letter word. But we should all strive to spend less than we earn. We must choose between what is a necessity, a luxury, and a long-term goal like college or retirement savings.
One of the most effective ways to manage your spending (without going overboard) is to build a budget you can stick to. You can use the following tips to get started:
- Evaluate your monthly income (after taxes).
- Create a list of monthly expenses.
- Analyze whether your spending matches your values.
- Use a budget to transform your values into achievable goals.
- Adjust your value-based budget as necessary.
You can check this article for some tips to help you reduce your spending.
3. Make sure your portfolio is positioned for some growth.
Women tend to invest more conservatively than men. Conservative investing feels safer, especially in market environments like the one we have experienced over the last 13 months. But the bulk of a portfolio’s growth often comes from growth-oriented investments such as stocks. Keeping your money in cash or near-cash likely means your portfolio will lag inflation. That means you will lose purchasing power over time. From 1950-2022, the Standard & Poor’s 500 Stock Index provided an annualized return of 11.12%, including reinvested dividends. On the other hand, 10-year Treasury bonds returned approximately 5.2% over the same period. Over the last 10 years, 10-year Treasuries have returned only 0.37% annualized. Against this backdrop, women must make riskier investments to potentially get higher returns and avoid outliving their assets.
Women should consider their risk tolerance when balancing the types of investments held in their portfolios. It’s also important that they properly diversify their holdings.
4. Ask for a raise or seek a higher-paying job.
According to the US Bureau of Labor Statistics, median earnings for women were 83.1% of the median earnings for men in 2021. Women who successfully increase their earnings through either a raise or a higher-paying job can also increase their retirement savings. Again, this may not be as easy as it sounds, especially in the current environment. You can find some helpful tips for getting a raise here.
5. If possible, work longer.
We often have less control over our retirement date than we expect. Lifestyle and health considerations, caregiving demands, and an ability to stay employed all factor into a decision about when to retire.
But it’s hard to deny the financial benefits that result from working longer. For example, you can contribute to your retirement plan for longer, you can delay the time at which you start making withdrawals from your retirement portfolio, and you can delay Social Security.
These benefits can be even more impactful for women. Why? They may have interrupted work trajectories. Longer life expectancies can also compound the stresses placed on retirement assets.
6. Be thoughtful in deciding when to claim Social Security benefits.
While you can start claiming Social Security benefits as early as age 62, you must wait until age 70 to earn your maximum benefit. For those born in 1960 or later, the full retirement age (FRA) for Social Security purposes is 67. From FRA until age 70, your benefit increases by 8% annually. In addition, any cost of living increases also get factored in. (Please see 5 Facts Every Woman Should Know About Social Security for more information.)
7. Manage healthcare costs.
According to one estimate, the cost of healthcare will increase at an average rate of 5.1% from 2021-2030. That easily exceeds the Fed’s current inflation target of 2%. Women tend to live longer than men. This often results in a wife providing a significant level of care for her spouse. That results in the wife not having anyone to help provide her care – unless someone like one (or more) of her children steps in. This makes realistically assessing the potential of future healthcare costs a critical aspect of retirement planning. Unexpected healthcare costs can significantly contribute to a retirement shortfall.
Although you become eligible for healthcare coverage under Medicare at age 65, there are some important facts to consider:
- Some aspects of Medicare require premium payments.
- Medicare does not cover all typical medical expenses. You may need to purchase supplemental health insurance coverage as well.
- Most forms of Medicare don’t cover dental- or vision-related expenses or stays in a long-term care facility.
8. Create a financial plan.
How do you know if you have a retirement shortfall? If you think you do, how do you know how big a retirement shortfall you have? It can help to create a financial plan.
Understanding what your retirement can look like, including your expected expenses and lifestyle goals informs how much income you need in retirement and how much you need to save. If the wife in a married couple has significantly lower retirement savings than her spouse, she will want to make sure she is financially protected throughout her lifetime. This includes determining the best time to claim Social Security benefits (as mentioned above). You should also make sure that you have sufficient life insurance to protect the financial security of both spouses, especially if one dies at an early age.
FAQs: Women & the Retirement Shortfall — What You Can Do Now
1) How big is the retirement gap—really?
It’s significant. Vanguard reported an average retirement balance of $148,153 (2024). Using the 4% rule, that’s about $5,930/year (~$490/month). The median 401(k) balance was $38,176, meaning that half of savers had balances below that. Even with Social Security, many aren’t well-positioned.
2) Why are women at greater risk?
The motherhood penalty (lower earnings and more time out of the workforce), longer life expectancy, and higher odds of caregiving all compound the gap, and the risk of outliving assets.
3) What’s a realistic savings target if I started late?
Starting earlier lowers the monthly burden. For example, if we assume 6% annualized growth, here’s how long it takes to reach $1M:
- 40-year career: ~$502/month
- 30-year career: ~$996/month
- 20-year career: ~$2,164/month
Automate it—pay yourself first—so saving happens before spending.
4) Do I really need a budget?
If you want to keep it simple, take a big-picture perspective. Compare your inflows (income) to your outflows (expenses). The greatest concern comes when outflows exceed inflows, as that leads to either lower savings or more debt.
You can use these tips to keep it values-based, not punitive.
- Confirm after-tax income.
- List monthly expenses.
- Check if spending matches your values.
- Turn values into goals.
- Adjust as life changes. Small cuts (not daily misery) create a big runway.
5) Should I assume more risk with my portfolio?
Often, yes—prudently. Historically, equities have provided higher long-term returns than cash/bonds. Being too conservative increases the risk of inflation and the chance of a shortfall. Diversify, match risk to your tolerance, and keep enough safe assets to sleep at night.
6) Besides saving more, what else moves the needle?
- Increase income: Ask for a raise or seek a higher-paying role; higher earnings while maintaining expenses = higher savings.
- Work longer (if possible): More contributions, fewer withdrawal years, and the option to delay Social Security.
- Time Social Security wisely: For those born 1960+, Full Retirement Age (FRA) is 67; benefits grow 8%/yr from FRA to 70. Delaying can materially lift lifetime income.
7) How should I plan for healthcare?
Costs tend to rise faster than general inflation. Remember:
- Medicare starts at 65, but parts require premiums.
- Medicare doesn’t cover everything (most dental/vision, long-term care).
- Consider supplemental coverage and realistic long-term care planning.
8) How do I know if I have a shortfall—and what do I do about it?
Build a financial plan. Map expected spending, income sources, taxes, and timing (including the optimal time to start claiming Social Security). Ensure the lower-earning spouse is protected over a longer lifetime. Align your TEAM of capital—Time, Energy, Attention, Money—with what matters most.
If you’d like a clear read on your own gap—and a practical path to close it—I’m happy to help. Schedule a free call, and we’ll start where you are.
Final Thoughts about how women can address a retirement shortfall.
Unfortunately, when it comes to personal finances, women often draw the short straw. Many different factors can lead to a retirement shortfall. Knowing what these factors are and addressing them before retirement makes a big difference. Assessing whether or not you have a retirement shortfall as well as how manageable it may be, typically requires a financial plan. Incorporating life planning into your financial plan as we do at Apprise can help you focus on what matters most to you and help you spend your money with greater purpose and intent. It helps you align your capital with what matters most.
I hope you find the above discussion helpful. If you have questions or would like some help with your financial plan, please schedule a free call. I’ll gladly answer any questions and assist in whatever way I can.
I’ll be back next week with “Apprise’s Five Favorite Reads of the Week.”
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