Women Are Better Retirement Savers Than Men, but Still Have a Lot Less Money

Income inequality doesn’t end when you quit working. A report out Tuesday finds that women lag far behind men in retirement savings, even though women save at higher rates and take fewer risks with their investments.

According to Vanguard’s How America Saves report, women are more likely than men to be in a 401(k) plan: 73% of women vs. 66% of men. The difference is even larger at higher income levels. Last year, 81% of women earning $50,000 to $75,000 a year participated in their 401(k) vs. 62% of men. Among people earning $75,000 to $100,000, 86% of women put away money in a 401(k) vs. 70% of men.

Women also save at higher rates than men: Women put away 7% to 16% more of their income than men. And women are less likely to engage in risky investment behavior, such as frequent trading.

Despite those good habits, women are significantly behind men in the amount they have put away. Men have average account balances that are 50% higher than women's. The average account balance for a man last year: $123, 262, compared with $79,572 for women.

“Women are better savers, but the difference in account balances comes down to the difference in wages,” says Jean Young, senior research analyst at the Vanguard Center for Retirement Research and the lead author on the report. “It’s not surprising. Women typically earn less than men do.”

Still, Young says, the Vanguard report revealed a lot of positive trends among retirement savers.

Among the findings:

• More people are enrolled in 401(k)s. One-third of companies have auto-enrollment programs that automatically put new employees into 401(k)s unless they choose to opt out. That's up from 5% a decade ago. Among large companies, 60% have auto enrollment. More companies are doing this not just for new hires but about 50% of plans with auto enrollment are also "sweeping" existing employees into plans during open enrollment, with a choice to opt out. Auto-enrollment has been criticized for enrolling people at very conservative deferral rates, typically 3%. That's changing slowly: 70% of companies that have auto enrollment also automatically increase contributions annually, typically 1% a year. And, while 49% of plans default people to a 3% deferral rate, 39% default to 4% or more vs. 28% in 2010.
• More retirement savers are leaving it to professionals. Thanks to the rise in target date funds and automatic enrollment (which typically defaults people to target date funds), 45% of people in Vanguard plans have professionally managed accounts vs. 25% in 2009. The number of people in such accounts is expected to surpass 50% this year, and that's a good thing, says Young. According to Vanguard, people in professional managed accounts have more diversified portfolios than those who make their own investment decisions.“A professional helps you find the appropriate asset allocation, rebalance, and adjust the portfolio to your life stage,” says Young.
• The bull market continues to deliver. The median total one-year return for people in Vanguard 401(k) plans was 7.2% in 2014. Over the past five years, 401(k) participants returns averaged 9.9% a year.
• Few people max out. Only 10% of 401(k) participants saved the maximum $17,500 allowed in 2014. But the number rises with higher earners: One-third of people who earn $100,000 or more a year max out.
• Savers are doing better than you think. Most financial planners recommend putting away 12% to 15% of annual income to save enough for a comfortable retirement. While the average 401(k) deferral rate is just 6.9%, combined with employer contributions, it’s 10.4%, close to that mark.

That doesn’t mean that most people are all set for retirement. Vanguard reports little change in account balances: The average 401(k) balance is $102,682, while the median is $29,603. The typical working household nearing retirement with a 401(k) and an IRA has a median $111,000 combined, which would yield less than $400 a month in retirement, according to a recent report by the Boston College’s Center for Retirement Research. But those who have access to a 401(k) and contribute regularly are in much better shape, regardless of whether you are a man or a woman.