Can Women Bridge the Retirement Savings Gap?

Many studies have shown that women lag behind men in saving for retirement. In a 2008 survey of more than 1,300 workers or retirees over age 25 by nonpartisan Employee Benefit Research Institute (EBRI) and Matthew Greenwald & Associates, 68% of women and 76% of men said that they "had" saved for retirement; 59% of women and 70% of men said they were currently saving; and 58% of women and 64% of men said they were contributing to a workplace retirement account. Two recent studies of participants in large-company plans show similar results. Vanguard, a mutual fund company that also manages retirement plans, reported that in 2007 the average account balance of more than three million participants in their 401(k) plans was $56,723 for women, compared with $95,447 for men. More recently, Hewitt Associates consultants surveyed nearly 2 million participants in large-company 401(k) plans the company manages and found that women had an average of $56,320 in their accounts, compared with over $100,000 for men.

The savings gap is expected to persist for the next 40 years or so, projects EBRI researcher Jack VanDerhei. Although he assumes more workers will have retirement accounts because of new rules encouraging automatic enrollment, boosting the dollar amounts of savings for both men and women, there would still be a sizable gender gap. For example, a 25-year-old woman currently in a 401(k), starting to save now, would save an estimated $255,000 in current dollars by age 65; while a man of the same age would accumulate savings of $325,000. For workers who are 55 now, the amount he projects they would accumulate in their account between now (to add to previous savings) and when they retire at 65 would be $29,452 for men and for women, about a third less, $20,506.

There are plenty of measurables, documented reasons for women's lower retirement savings. Women spend less time in the labor force, often because of care-giving demands, and/or are more likely to work part-time at some point. They earn about 80 cents on the dollar compared with men. And they're less likely to participate in some type of pension plan. The fact that, on average, women tend to live three years longer than men and live alone for more years intensifies the effects of the savings gap, making it even more crucial for them to prepare better for their golden years.
Save Early, Save Often

As far as I know, no one has come up with a fool-proof retirement savings strategy for women that's any different from the best strategies for men. Start saving as soon as you begin working, and design and follow a realistic budget that allows you to join your employer's retirement plan. Contribute as much as you can to your company plan or—if one is not available—to an IRA. And don't take money out of retirement savings to meet short-term needs. These basics apply to everyone.

Beyond the basic budgeting, advisers recommend measures such as: Use calculators such as these from the Savings Education Council to estimate both your retirement needs and income based on current savings; use Social Security calculators to estimate how much Social Security you would receive based on your own earnings or as a spouse or widow; for married women out of the workforce, start a spousal IRA. If you have a life partner, you should both follow this advice, and also do a thorough analysis of your 401(k) and other investments, at least once or twice a year, rebalancing your portfolio if it's no longer well diversified.

It's worth pointing out that the gender savings gap is not just an issue for very low-earning women. Linda E. Katz, a financial planner in Huntington, N.Y., says she sees the same problem for women in middle management. Some of them, especially those who live in high-income areas, simply don't make enough money to save much. She also says that she sees quite a few clients who allow financial demands from their children and parents to trump putting away money for their own retirement.

Executives and professional women also need to pay more attention to their future, says Margaret K. O'Meara, a financial planner in Red Bank, N.J. For the high-income women she counsels, "the biggest things are the lifestyle and longevity issues," she says. Her clients may make $250,000 or $300,000 a year and still be behind on retirement saving. One of her clients in her 40s in this income range wants to leave her high-stress job to retire or downsize to part-time work, but she doesn't want to sacrifice the family vacation home or luxuries such as expensive wines and food to save for what could be as much as 40 or 50 years in retirement. Some women also lose a chance to catch up on saving by refusing to charge their college-graduate children for rent, cable TV, or other amenities.

The gender gap in retirement savings should concern all of us. A good resource is the nonprofit Women's Institute for a Secure Retirement, which contains a wealth of basic information about the barriers and potential solutions to the special retirement savings challenges that most women will confront at some time in their lives.