Gender Retirement Gap August, 2017 Diane Garnick Chief Income Strategist TIAA Motivation Retirement goal setting is universal; consistent standard of living Determined by smoothing out income averages Cutting the data just once, by gender, uncovers significant variation Income Smoothing on Average Income $100k Standard of Living Illustrative purposes 30 65 100 2 1
Two new graduates; same job, same starting pay Gender Retirement Gap Woman Man Difference Gross Pay $100,000 $100,000 - Retirement Savings Rate 18% 10% 8% Net of Retirement Savings $82,000 $90,000 $8,000 Monthly Paycheck $6,833 $7,500 $667 Intuitively it might seem equitable to offer the same gross pay It masks the reality that many women face Source: TIAA 3 years in the workforce Typical timeline for professionals includes a gap for advanced studies Average age for a women in the US to have her first child is 26 Among all Mothers 11% of Highly Educated Mothers Opt Out Career Decisions Parents Make 29% Stay at Home Reduced Work 71% Work Outside the Home Significant Time Off Quit Job Fathers Mothers Source: Pew Research Center, May 2014 Turned Down Promotion 0% 20% 40% 60% Source: Pew Research Center survey, October 2013 Source: Pew Research Center, May 2014 4 2
years in the workforce Leaving to raise children is only half the issue More women take a second career break to tend to family members Daughters spend twice as much time providing care to elderly parents than sons 67 hours year 148 hours year Source: Angelina Grigoryeva, Princeton University 5 years in the workforce years in the workforce impacts savings social security benefits Women work 75% of the years men work Lifetime Lifetime Years Men Women Men Women Precisely Right 80,000 80,000 40 40 Childcare (1,170) (12,900) (0.6) (6) Family Break (1,008) (2,214) (0.5) (1) 38 Years 29 Years Full Employment 77,822 64,886 39 33 Source: Constructed by the author using data from the Pew Research Center May, 2014 Source: Social Security Administration 6 3
Gender pay gap hours worked can be made up in compensation, well, maybe one day Pay gap continues to persist for all women, especially for professionals 2015 Weekly Earnings for Professionals Still just 72 per dollar $60,000 $50,000 2015 U.S. Median Annual Income by Gender Men Women $50,383 Still just 78 per dollar $40,000 $30,000 $39,621 $1,383 $996 $20,000 $10,000 $0 1960 1970 1980 1990 2000 2010 2014 Source: U.S. Census Bureau, Income and Poverty in the United States 2014, September 2015 7 aversion Women hold more cash, limiting growth; Men hold riskier assets, improving returns Opportunity cost of holding cash (cash drag) results in lower returns 20% Studies focus on tax deferred accounts, not household wealth Cash Default option could play a role Category Men Women Men - Women Cash 15.6% 20.6% -5.0% Variable Annuities 3.1% 5.1% -2.0% Fixed Annuities 4.4% 6.3% -1.9% Certificate Deposit 5.8% 7.1% -1.3% Other Investments 2.7% 3.9% -1.2% Bonds 5.0% 5.3% -0.3% Separately Managed Accounts 2.8% 2.5% 0.3% Fixed Index Annuities 1.7% 1.4% 0.3% Alternative Investments 2.1% 1.6% 0.5% Exchange Traded Funds 2.8% 2.2% 0.6% Stocks 21.1% 16.6% 4.5% Mutual Funds 33.0% 27.5% 5.5% 5% More Cash 5% More Bonds 4.5% More Stocks Source: Cogent Reports 2014 Investor Brandscape Custom Data Tables, 2014 8 4
Men play catch while women play catch-up Responsibility? Returning to our two recent college graduates, to accumulate the same level of wealth at retirement for every 10% a man saves, a woman has to save 18% 1 Women work 75% fewer years 2 Women earn 75% less compensation 3 Women are more risk averse Source: TIAA 9 To or through Thus far we have only addressed issues leading TO retirement Key assumption embedded in the 1.8 factor: Men and Women incur the same expenses throughout retirement Equal savings AT retirement does not result in an equal standard of living 10 5
Women consistently live longer Projected divergence of life expectancy at birth will double by 2020 77.1 79.4 83.0 85.5 Source: U.S. Census Bureau, 2015 ; 65 year olds Year Men Women 2015 77.1 79.4 2020 78.0 82.4 2030 79.6 83.7 2040 81.2 84.8 2050 82.7 86.0 2060 84.0 87.1 Source: U.S. Census Bureau, 2015 Projections at Birth 11 provider Number of years as a sole provider to the household is longer than many expect Age spread in marriage, survival as a widow/widower Number of Years 27.0 74% 25.8 83.0 85.5 Source: CDC / National Center for Health Statistics; Data for 65 year olds as of 2014 tables. 3% Die in same year 48% 28% 14% 5 years + 10 years + 15 years + 20 years + Source: LIMRA Retirement Income Reference Book 2012 12 6
expenses Expenses expenses are higher for women, even after adjusting for longevity Lifetime Costs $361,192 What if men lived as long as women? $268,679 Longevity Adjusted Lifetime Costs $361,192 $305,281 Adjusting longevity to match only accounts for 40% of the increased cost Women would still spend over $55K, 18%, more on healthcare Source: The Lifetime Distribution of Costs, Health Services Research Center 13 Summarizing the Gender Retirement Gap Expenses The Gender Retirement Gap impacts women throughout their entire lives Customized solutions and careful planning can help to narrow the gap Women work 75% of the years 1 Women live 2.5 years longer Women earn 75% of the compensation 2 Women become sole providers for a decade Women are more risk averse 3 Women spend more on healthcare Source: TIAA 14 7
Simple Solutions Savings Lifetime Income Women enter their retirement planning phase facing significant headwinds Three noteworthy solutions that are easy to implement 1 Women may want to consider supplemental savings 2 Women might benefit by increasing their risk level 3 Lifetime income could play a more important role for women Source: TIAA 15 Save now or die trying Savings Lifetime Income Investment sequence of returns risk can hamper one s ability to catch-up Invest early and often, even ignoring the maximum savings levels $5,500 $18,000 Source: Internal Revenue Service, Publication 590, 2016 16 8
Marginal levels of risk Savings Lifetime Income Many women can afford higher levels of well chosen risk; notably equity Increasing allocations toward the upper right quadrant could improve performance 10% 9% 8% Direct Real Estate International Stocks Large Cap Stocks Investment Return 7% 6% 5% 4% 3% 2% 1% Money Market Guaranteed Bonds 0% 0% 5% 10% 15% 20% Source: TIAA 17 More lifetime income Savings Lifetime Income Lifetime income as a solution for essential expenses; women s are higher Essential expenses include healthcare; more expenses and increasingly important When available in plan, lifetime income is offered using gender neutral tables 60% 50% 40% Housing & as a Share of Budget 50.1% 44.5% 39.9% 30% 20% 10% 0% 55 to 64 65 to 74 75 & Older Source: LIMRA Secure Retirement Institute, 2015 18 9
INTEL principles Data driven analysis Without data, you re just another person with an opinion Behavioral Economics Focus on what people actually do, not what they are supposed to do Holistic viewpoint Every lifecycle stage is included Simple Empirical Behavioral Commercial Holistic Thoughtful 19 Q&A Reach out with inquiries, insights or ideas: INTEL@TIAA.org Download the full paper at: www.tiaa.org/incomeinsights Diane.Garnick@TIAA.org +1 (212) 916-4383 20 10
INTEL team Diane Garnick Diane Garnick is a Managing Director and Chief Income Strategist at TIAA. In her role Diane manages the thought leadership across TIAA and CREF lifetime income offerings. An industry thought leader with two decades of experience structuring retirement and investment solutions, Ms. Garnick is responsible for advancing the strategy, development, and modernization of TIAA's lifetime income solutions across the firm s portfolio of products and services. She is a practitioner of behavioral economics and quantitative finance including data science, reproducibility, and rigorous examination of interesting ideas. In this role she simplifies the complexities surrounding lifetime income products for the thousands of institutions and millions of individuals TIAA serves. 21 Important information This material is for informational or educational purposes only and does not constitute a recommendation or investment advice in connection with a distribution, transfer or rollover, a purchase or sale of securities or other investment property, or the management of securities or other investments, including the development of an investment strategy or retention of an investment manager or advisor. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made in consultation with an investor s personal advisor based on the investor s own objectives and circumstances. Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, are not deposits, are not insured by any federal government agency, are not a condition to any banking service or activity, and may lose value. This presentation is intended for informational and educational purposes only and should not be regarded as a recommendation or an offer to buy or sell any product or service to which the information may relate. Certain products and services may not be available to all entities or persons. TIAA does not provide legal or tax advice. Please consult your tax and legal advisors to address your specific needs and circumstances. Please note that TIAA is not responsible for the content or privacy policies of third-party sites that may be referenced in this presentation or to which you may link from this presentation. TIAA does not endorse or recommend the products, services, or information found on any thirdparty site. TIAA-CREF Individual & Institutional Services, LLC, Teachers Personal Investors Services, Inc., and Nuveen Securities, LLC, Members FINRA and SIPC, distribute securities products. Annuity contracts and certificates are issued by Teachers Insurance and Annuity Association of America (TIAA) and College Retirement Equities Fund (CREF), New York, NY. Each of the foregoing is solely responsible for its own financial condition and contractual obligations. 2016 Teachers Insurance and Annuity Association of America-College Retirement Equities Fund (TIAA-CREF), 730 Third Avenue, New York, NY 10017. C31482 22 11