An in-depth look at the retirement account balances of men and women by Prudential Retirement reveals an alarming disparity: Even as the fight for equal pay has helped shrink the gender wage gap, retirement savings of working women have fallen far behind men, putting them at great risk of outliving their hard-won earnings.
Women typically live five years longer than men, which means their retirement dollars will need to work harder for longer. Yet working women aren’t saving nearly enough to make up the retirement funding shortfall. According to Prudential’s new paper, Closing the Retirement Income Gender Gap: The Opportunity is Now, 401(k) account balances of female employees are one-third lower than their male counterparts on average, based on a review of participant data.
“Seeing the differences in account balances was eye-opening,” says Janice Co, head of strategy and marketing for Prudential Retirement. “Compound this with lower average Social Security benefits and longer life expectancies, and women are caught in a perfect storm when it comes to retirement.” In a recent Prudential survey of pre-retirees, 25 percent of women indicated that they don’t think they’ll ever be able to retire, compared to 14 percent of men.
Despite the urgent need for women to plan ahead, Prudential cites research saying that only a third of women have a clear set of retirement goals, compared to 45 percent of men. The same research found that 44 percent of women agree that retirement is important, but say they haven’t had a chance to give it the attention it deserves.
According to the paper, a mix of behavioral patterns and external pressures put women at a disadvantage in terms of planning for and saving towards retirement, including the financial impact of maternity leave and time-consuming caretaking responsibilities (still most often shouldered by women), a higher share of student loan and mortgage debt, a more conservative or passive approach to investing, and a greater likelihood of being single later in life, after divorce or death of a partner.
Closing the Retirement Income Gender Gap provides plan sponsors with guidance to help them reach female employees and improve their long-term financial well-being. Employers can help bridge the gender gap in retirement savings by optimizing retirement plan design to feature automatic enrollment and escalation, offering target date funds as a default investment option (for defined contribution plans record-kept by Prudential, the average participation rate is 85 percent for plans with automatic enrollment and 57 percent for plans without) and providing in-plan guaranteed lifetime income options.
What’s more, plans can expand education and improve employee engagement by offering financial wellness programs and updated support resources, while leveraging technology to help all participants—women and men—better understand their retirement needs and set savings goals.
“For working women, the most important thing is to make sure we’re taking care of our future selves in retirement by paying ourselves first,” Co says. “We should increase retirement contributions by 1 percent each year and find a financial planner who can help balance retirement savings goals with other financial priorities. Even small changes can make a big difference and help us retire with confidence.”
Download or read Closing the Retirement Income Gender Gap: The Opportunity is Now. To talk to Janice Co, contact Monique Freeman.