Gender Differences in Wealth at Retirement

Recent economic trends, like the growing prevalence of defined contribution retirement plans, have made individuals increasingly responsible for their own financial security. Financial security greatly depends on the ability to accumulate adequate wealth (Edward Wolff 1998). Wealth can be a significant source of retirement income for individuals less and less able to rely on Social Security and employerprovided defined benefit pension plans. One concern in the current economic climate is the persistent gap in wealth between men and women. Several papers—for example Lucie Schmidt and Purvi Sevak (2006)—have found that the gap is significant even after controlling for individual characteristics. This paper contributes to the literature by studying the role of risk preferences in addition to other characteristics. Specifically, it addresses the following research question: controlling for other factors, do gender differences in risk preferences contribute to the gender wealth gap at retirement? The underlying premise is that women are more risk averse than men, which is supported by previous research (for example, Robert B. Barsky et al. 1997). A simple theoretical model of household decision-making illustrates that retirement wealth is a function of income earned over the lifetime and risk aversion. The model is empirically tested using data from the Health and Retirement Study (HRS).1 Results show that the gender gap in wealth persists even when risk preferences are added to the set of controls. Thus the unexplained gap remains a cause for concern.