A new Vanguard study of participants in the retirement savings plans it oversees shows that men's 401(k) account balances are significantly larger than women's on average—roughly $123,000 vs. $80,000. But don't equate size with retirement planning effectiveness. Despite their lower balances, here's why women are still better retirement planners than men—and why you should emulate them if you want a secure retirement.
1. Women are more likely to participate in a 401(k) than men. The single most important thing you can do to improve your chances of being able to retire in comfort is save on a regular basis, preferably by taking advantage of a tax-advantaged plan like a 401(k), if one is available to you. And Vanguard data based on 720,000 eligible employees shows women are more likely to take this crucial step. Overall, 73% of women vs. 66% of men enrolled in their employer plan. This was true for each of the income groups Vanguard examined, ranging from less than $30,000 to more than $100,000 a year.
Interestingly, participation rates between the sexes even out at 89% in 401(k)s with automatic enrollment, which require employees to opt out if they don't want to be part of the plan. Which suggests that while men may not be as eager as women to do the right thing on their own, they'll make the right choice with a little prodding.
2. Women save a higher percentage of salary than men. Once they're participating in a 401(k) plan, women are also likely to save a larger portion of their income than men. Granted, when you compare the average savings rates for all 585,00o plan participants for which Vanguard had data, the difference isn't very big—7% of salary for women vs. 6.8% for men (not including any employer match). But the gap widens considerably at higher levels of income. For example, women earning $75,000 to $99,999 a year saved 8.6% of pay on average vs. 7.4% for their male counterparts, while those earning $100,000 and up saved 9% vs. 7.9% for men with comparable earnings. Over the course of a long career, even small increases in the amount you save each year can translate to a substantially bigger nest egg at retirement and significantly more income throughout your post-career life.
Of course, it makes sense that women should save more than men, as they have longer life expectancies and will need a larger nest egg to avoid outliving their savings in retirement. But whatever the reason or motivation, it seems clear that women, especially those with more earning power, are the better retirement savings role models.
3. Women invest more prudently than men. Conventional wisdom holds that women are more risk-averse investors and thus less likely to invest for growth than men. But Vanguard data based on the accounts of some 3.6 million 401(k) participants shows that, when it comes to their overall stock allocations at least, men and women are pretty similar, with women holding 73% of their savings in stocks vs. 74% for men.
But there are also differences. The study shows that women are more likely than men to choose an investment that contains a diversified mix of stocks and bonds, such as a target-date or balanced fund, than try to assemble a portfolio on their own with individual stock and bond funds from their plan's roster. Vanguard's research also shows that women are somewhat less likely than men to own company stock and less apt to trade in and out of investments in their retirement account.
On balance, I'd say this gives the edge to women on the retirement investing front, if only because separate research by Financial Engines and Aon Hewitt has demonstrated that 401(k) participants who get investing help in the form of target-date funds and managed accounts generally enjoy better investing results than those who invest their accounts on their own.
So why then, you may ask, if women are so much better at the basics of retirement planning, do they lag their male counterparts when it comes to the value of the assets in their 401(k) accounts? The answer is simple: male participants in the 401(k)s examined in the Vanguard study earn about 25% to 33% more on average than women, plus men tend to have more time on the job. That combination of higher salaries and longer tenure leads to fatter account balances.
Of course, when it comes to your own retirement-planning efforts, it really doesn't much matter how men and women stack up against each other. What matters is what you do—specifically, whether you participate in a 401(k) or similar plan if one's available; whether you save enough to give yourself a shot at building an adequate nest egg; and whether you invest your savings in a diversified portfolio with an emphasis on growth. And for each of those crucial steps at least, it would seem you're better off taking your cues from women 401(k) participants than from men.
Walter Updegrave is the editor of RealDealRetirement.com. If you have a question on retirement or investing that you would like Walter to answer online, send it to him at firstname.lastname@example.org. You can tweet Walter at @RealDealRetire.
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