THE BLOG
07/20/2015 09:25 am ET Updated Dec 06, 2017

Retirement Planning: Women Are Better At Saving And Investment Than Men

When it comes to investing and retirement savings, women have an edge over men.

The problem is that when it comes to how much they have saved for retirement planning, men still have the advantage because they earn more than women, according to a report from Vanguard. The report entitled How America Saves and looks at those in 401(k) plans. It details how 73 percent of women are in those plans compared to only 66 percent of men.

With higher incomes, women distance themselves even further from men, with 86 percent of those earning between $75,000 and $100,000 participating in the plans compared to only 70 percent of men.

Not only are a greater percentage saving, but women have higher contribution levels than men. The report says women put away as much as 16 percent more of their income than men. (They're good at savings, but Now it Counts has also covered why so much retirement planning for women is still done by their husbands.)

None of that, however, makes up for men having 50 percent higher balances because they earn more than women. Vanguard says the average account balance for men was about $123,000 compared to just under $80,000 for women.

"When you look at account balances overall, that's really an artifact of the wages," says Jean Young, a senior research analyst in the Vanguard Center for Retirement Research and author of the report. "If you look at the account balances overall by wage, then you see that women have account balances on average and at the median that are higher than men."

It's pretty clear that women are better savers and investors than men, and that's what survey after survey shows, Young says. Not only are they likely to take advantage of a professionally managed option, but they're likely to have better portfolio construction than men. They're also less likely to trade and so they're less likely "to shoot themselves in the foot," Young says.

"They're doing a better jobs with these plans," she says. "How well you are positioned is a function of your expectations. To the extent that through their working years, they don't have wages as high as men, they're saving better and investing better. When you compare post-retirement to pre-retirement, they're probably in a better than their male counterparts are going to be, but it's all very subjective because if you earn $200,000 then in retirement you have to live on $50,000, versus if you earn $50,000 and in retirement you have to live on $50,000, who's better off. It's a little bit more nuanced."

As for those 50 and older, Young says the advice is simple: individuals with retirement plans who participate in their workplace savings plan and save at a high-enough rate are going to be better prepared for retirement.

"The first step in retirement savings is participation," Young says. "Over the past decade, we've seen a meaningful jump in total participation rates. Three-quarters of eligible workers now participate in their employer's plan, up from two-thirds ten years ago, underscoring the impact of autopilot plan designs."

Young says if you look at the history of 401(k) plans in the 1980s when they first came out, they were supplemental to traditional pension plans. The period saw about 40 percent who had access to a 401(k) save in them. Through education in a voluntary enrollment design in the 90s, the industry saw that dial move to about 60 percent, she says.

"Where the real headway has been made is with the automatic solution and automatic enrollment," Young says. "With automatic enrollment, you can move the participation rate to 90 percent or higher. The dial is moving in the right direction."

By the end of 2014, 36 percent of Vanguard plans had implemented auto enrollment, a 50 percent increase since 2009 and 60 percent of newly hired employees participating in Vanguard 401(k) plans were automatically enrolled, she says. More and more companies are also increasing the automatic enrollment contributions of employees by 1 percent a year since many start at 3 percent deferral rates are set at those levels.

As for those 50 and older when it comes to preparing for retirement, Young says it's never too late.

"Older individuals and higher paid individuals are doing things like maxing out and making catchup contributions," Young says. "Everybody benefits from stronger savings in their 50s and 60s."

Also, make sure to go with professionally managed allocations - unlike what they gaught back in the 1980s, when the industry thought it could reeducate everybody and teach them what they needed to learn to construct good portfolios.

"That turned out to be a pretty naïve idea, and that's why we have such things as target date funds and balanced funds and managed account programs," Young says."

Vanguard recommends a target savings rate of 12%-15%, including employer match.

Last year, $4 of every $10 deposited in Vanguard plans was invested in target-date funds, Young says. As of year-end 2014, roughly one in eight employees held an extreme allocation position -- 8 percent of participants held only equities, while 5 percent held no equities in their portfolios. Ten years ago, one in three participants held an extreme allocation position -- 21 percent had all-equity portfolios, while 13 percent held no equities, Young says.

In addition to the broad adoption of diversified, balanced investment programs, there has been a dramatic shift away from company stock, Young says. Only 8 percent of participants held a concentrated stock position at the end of 2014, compared with 18 percent a decade prior--more than a 50 percent improvement.

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