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Money July 2012

Aid for Age

Retirement Woes for Women? Study Finds their Savings Lag Far Behind Men’s

By Tait Trussell

Women’s defined contribution plan balances of only 60 percent of men’s average balances is especially concerning because women live longer than men and are more likely to have work disruptions for caregiving that hinder their capacity to save.

Retirement savings of working women lag significantly behind those of men. Working women 50 or older have average defined contribution (DC) plan balances about $63,000 less than working men 50 or older.

This is the case even though they have “similar individual and household characteristics,” as the study of the differences puts it. The study was conducted by LIMRA, a worldwide consulting and professional development organization that serves more than 850 insurance and financial services companies.

Women’s defined contribution plan balances of “only 60 percent of men’s average balances,” said Cecelia Shiner, senior analyst with LIMRA’s retirement research, “is especially concerning because women live longer than men and are more likely to have work disruptions for caregiving that hinder their capacity to save.”

(The two major compensation plans in industry are defined contribution and defined benefit. You typically don't fork over any of your paycheck to participate in a defined benefit plan. Your employer does. But you do have to put your own money into a defined contribution plan, such as a 401(k). In most cases, a defined benefit plan is a much better deal.)

While the average plan deferral rate is higher for women age 50 or older, they are much more likely to earn less than men of the same age (including their spouses – 53 percent versus 40 percent, respectively.

Gender differences in earnings are more significant in coupled employees over the age of 50 than in those 50 or younger. Women under age 50 are likely to earn as much as their spouses. But that certainly wasn’t true a generation or more ago. I earned several times as much as my wife, mainly because she stayed at home and raised our offspring and didn’t work as many years as I have.

Some politicians and women’s groups continually declare angrily that women unjustly earn 70 percent of what men make (sometimes because they have a shorter time in the workforce) Today, young women with advanced college degrees, however, actually earn more than men on average.

LIMRA researchers found that across all age groups, men are more likely to identify retirement as the important reason for saving. “This finding suggests that women are less likely than men to prioritize and take on the responsibility for retirement saving.”

It could be for married couples that wives trust their husbands with such long-range money responsibilities, while they deal more with the day-to-day money matters, such as buying groceries.

Another piece of information the researchers uncovered was the “relative lack of knowledge among most women about financial products and services.” When rating their own know-how as compared to women, men are more likely —of course— than women to rate their knowledge higher — 29 percent to 14 percent. Some men think they know it all. But only three-fourths in the study said they felt “at least somewhat knowledgeable about financial products and services.” Only 54 percent of the women felt similarly.

The study revealed, however, that employees with similar financial knowledge levels, regardless of gender, are comparable in terms of their behavior toward retirement planning activities. Men and women who have know-how regarding investments or financial products are more likely than those who are “somewhat or not as knowledgeable” to be very involved in monitoring and managing their retirement savings.

LIMRA suggested this finding may suggest that “if women improved their financial literacy they would become more active in retirement planning.”

“We have to do more, as an industry, to educate women on the importance of retirement and saving,” said Shiner. Companies “can help provide their employees with the tools and information to encourage them to participate and become more involved in their retirement.”

The study examined nearly 2,500 employees, who were eligible to take part in a DC plan. Not included were government employees, the military or self-employed.

In another LIMRA study, 40 percent of those questioned said they aren’t well informed about generating retirement income, investing retirement assets or managing risks. But they said they were willing to turn to financial advisers for guidance. Forty-four percent of retirees said they trust financial advisers for assistance.

Fewer than half of the people surveyed said they plan for more than 20 years of retirement. Few have planned for how they will pay for long-term care, rising taxes, or inflation, or what they will do if they outlive their assets.

This is a most troubling finding.

 

Tait Trussell is an old guy and fourth-generation professional journalist who writes extensively about aging issues among a myriad of diverse topics.

Meet Tait