Closing the Retirement Plan Contribution Gap

Living five to eight years longer than men, women have quite a bit more life to fund in retirement. Yet on average, women hold less in their 401(k)s – $73,100 compared with their male counterparts’ $108,800.

What’s more, 45 percent of women aren’t doing anything to save for retirement beyond contributing to their employer-sponsored plans, and 92 percent of working households don’t meet conservative retirement savings targets.

The result: Only 14 percent of women say they’re “very confident” in their ability to fully retire with a comfortable lifestyle. Tax-deferred accounts aren’t the end-all, be-all of retirement planning, but without a sizeable 401(k) or IRA, it will be tough for the average middle- or upper-class woman to maintain her quality of life in retirement – with or without the help of a spouse.

Fortunately, many working women have the means to contribute more and take more market risk, setting themselves up for higher incomes and lower longevity risk in retirement. And even those who spend a decade or more out of the workforce can leverage alternative options to consistently grow their nest eggs.

Who saves more?

In terms of percentage of income saved, women tend to be better investors than men: They save 9 percent of their salaries annually and earn a 6.4 percent rate of return, according to Fidelity, compared with 8.6 and 6 percent for men, respectively. Until she starts earning over $150,000 a year, a working woman in any given income range also has higher participation rates and a higher 401(k) balance.

Remove the income filter, however, and men have significantly more stashed away. There’s a 32 percent difference in savings across all ages and income levels between men and women. Even among employees who have stuck with their employers for 10 years or more, women have saved 28 percent less than men.

Why the disparity?

“Women tend to spend about 12 years out of the workforce, and of course that’s going to impact their 401(k) contributions, IRA contributions and projected Social Security benefits,” says Steve Parnell, director of strategic markets for Hartford Funds.

Men also tend to make more money than women – around 20 percent more. Combine that disparity with a decade spent raising children and working part time – or not at all – and women will end up with significantly less in their tax-deferred accounts by the time they reach retirement.

Mind the gap

Despite the stereotype that women are more risk-averse then men, their rates of return aren’t too far apart: 10.1 percent for men and 9.7 percent for women, not controlling for income. Vanguard data show that, while men tend to hold more company stock and women more target-date funds, overall equity allocations are almost identical between the two sexes.

With fewer funds and years to contribute, however, women may actually need a higher equity allocation than men, at least for a portion of their working lives.

“You need to take more risk when you have more time and need to make the money last longer,” says Parnell.

Likewise, contributing a higher proportion of income to a 401(k) is a safe bet. A scant 10 percent of participants max out, according to Vanguard, and one in four employees don’t save enough to get the full employer match. Few workers can afford to leave that money on the table. Women can afford it least of all.

Mindset and education