Many people won't save enough money for a comfortable retirement, but women have an even higher risk than men of coming up short when they stop working.

There are three key factors that have the greatest influence on retirement savings: income levels, risk tolerance and life expectancy. In each of these categories, women may hold the losing hand. Read on to learn why women fall behind on retirement savings and what they can do to catch up.

Income Falls Short

According to the U.S. Census Bureau, three out of four women earn less than $40,000 a year. In part, women earn less than men because of time spent out of the workforce. Women frequently take time away to have children, raise families and increasingly, to care for aging parents.

At the same time, however, women are often paid less for the work they do, regardless of how long they're employed. According to the Women's Institute for a Secure Retirement (WISER), in 2007, women earned only $0.77 for every dollar on average, compared to men. That's a $300,000 loss over a career's lifetime! 

Because retirement benefits are based on accumulated earnings during a working career, this "gender wage gap" quickly turns into a retirement wage gap. As such, WISER points out, women with pensions receive about half the amount men do, or $4,200 annually compared to $7,800 each year for a man.

The impact of this gap is multiplied by the fact that women typically live seven years longer than men. Add on the possibility of divorce or widowhood, in which women may lose out on a portion or all of their spouse's pension benefits, and women clearly head into retirement with far less wealth than men.

Risk Tolerance Is Low

When it comes to choosing how to invest retirement savings, every individual must decide which risk-return relationship is comfortable, but also ensures their financial goals are reached. A common mistake is to invest retirement assets too conservatively, thereby sacrificing long-term growth.

Investment history and theory have proved that higher returns are attained by taking on more risk. For women, being overly cautious with an investment strategy for retirement will only magnify the problems they already face as a result of lower lifetime incomes and longer life spans.

Figure 1, below, shows two retirement-savings scenarios comparing a conservative investment strategy with a more aggressive growth strategy.

Figure 1: Conservative vs. aggressive investing returns

The conservative investor is a 45-year-old woman making $40,000 a year. She has saved $35,000 and is adding another $200 per month into retirement savings. She invested her money conservatively for 20 years: 20% stocks, 50% bonds and 30% in short-term money market funds.

The aggressive investor is a woman with the same income, the same savings and the same time horizon, but she invested her money aggressively for 20 years: 85% stocks, 15% bonds and 0% in short-term funds.

By age 65, the conservative female investor saved $235,000 in retirement money, while the aggressive investor reached $352,000. As you can see, by taking on some additional risk and investing more in stocks, the aggressive investor created $117,000 more in retirement funds. Not considering taxes, if each woman lives to be 80.5 years (current life expectancy of women in the U.S. according to the CDC), the aggressive investor would have around $24,000 per year to live off of compared to the roughly $16,000 the conservative investor would have.

It's All In Your Mind

Psychological factors play a very important role in how women deal with money and investments. A review conducted by James Byrnes, David Miller and William Schafer (1999) of 150 psychological studies of risk-taking by men and women found that women generally perceive more risk, and are more risk-averse in situations ranging from health to the environment, public policy or finance.

The reasons for this risk-gender discrepancy are complex. Some studies suppose that women's greater responsibility in childbearing and reproduction leads to risk-aversion (J. LaBorde Witt, Journal of Women and Aging, 1994). Others point to the way women are raised. Regardless, most women can recount feelings of fear and intimidation when it comes to dealing with money and investments.

A recent analysis by John Watson and Mark McNaughton in the Financial Analysts Journal in July 2007 quantified the impact that risk-aversion has on women's projected retirement benefits. Controlling for age, income and education, the study concluded that women choose more conservative investment strategies, and that this is the primary reason why women can expect to have less retirement savings than men. The effect is compounded because women make less, retire earlier and live longer than men.

What's Next?

Women require more financial education to help them determine the appropriate risk, return and retirement strategies to meet their goals. A growing number of financial advisors, banks, and organizations have recognized this knowledge-gender gap and are creating education programs aimed specifically at women.

It's time for all women to take charge of their retirement savings. Seek out a financial advisor, an investor education materials and other resources that target the unique circumstances women face. Ask questions. Don't wait.

Stephanie Loiacono, CFA, is a financial writer and analyst with 20 years of experience in investment management and research. She is currently writing a book, titled "Financial S.O.S. for Divorced Women."