Everyone knows that almost no one is saving enough for retirement these days. What may be a surprise is that women trail men in retirement savings by a hefty margin, and are more likely to default on loans from retirement plans than men. Women save less for retirement and are more likely to default on a loan taken from their retirement savings.But why does this happen? And, perhaps more important, what can be done about it?.
First, here are the facts, according a study from Aon Hewitt, which found that women not only save less — 6.9 percent compared to men’s 7.6 percent — and have average retirement balances of only $59,300 compared with men’s average balances of $100,000, but a third also fail to take full advantage of employer matches. Only a quarter of men fail to rake in as much as their employers will give.
These savings habits are the No. 1 reason women have a tougher time making ends meet in retirement, according to the report.
Women who have contributed to retirement savings throughout their career should have 11.2 times their final pay to meet retirement needs, but are actually on track to accumulate only 8.6 times their final pay. That's a shortfall of 2.6 times pay. Men have a projected shortfall of only 1.9 times pay.
"Women face a number of challenges when it comes to saving for retirement including gaps in their career when they are not actively contributing to their retirement and longer life expectancies, said Patti Balthazor Björk, director of retirement research at Aon Hewitt. "However, there are factors that women can control to boost their retirement savings, such as how much they contribute, how they invest over time and whether they keep assets within the retirement system."
As offensive as the idea might sound, women’s financial literacy is simply not as good as men’s. And that’s true, Mitchell said, across the globe, not just in the U.S. Citing the results of a global study that asked “very simple questions in about 25 different countries,” she said, “we have a pretty global picture of financial literacy differences.” And they are legion.
Women and men take loans from their retirement savings at the same rate, but women are more likely to default on the loan if they leave their job. Seventy-one percent of women who terminated employment with an outstanding loan defaulted on the loan, compared to 64 percent of men, Aon Hewitt found.
“Women are less likely to understand compound interest, which is central to things like credit cards, mortgages, student loans — you name it,” she began. They’re also “slightly less informed about inflation — there’s not too much of a difference there, but they’re (also) much less aware of risk diversification. That would lead women to put too much money into a single asset: a home, for example, and not to diversify across different categories.”
- Invest more and begin investing earlier.
- Take advantage of employer matching contributions.
- Make the most of automatic features like automatic enrollment and auto escalation.
- Avoid taking loans from retirement savings.
- Take advantage of “help” tools.