Gender Gap Plagues 401(k) Savings Rates
It’s no secret that women, on average, are paid less than men. However, gender inequality not only affects women’s paychecks, but it also impacts their standard of living in retirement, a new surveyshows.
Women trail men substantially when it comes to saving for retirement, according to findings from a survey of more than 4,000 adults by investment firm T. Rowe Price. The survey, conducted by data analytics firm NMG Consulting, focused on two groups: adults 21 and older who currently contribute to a 401(k) plan or are eligible to contribute to one and have a balance of $1,000 or more, and current retirees with a Rollover IRA or left-in-plan 401(k) balance.
Baby boomer women — all of whom are nearing or have entered retirement — trail their male counterparts in savings for life after work. In fact, on average, they have less than half of what baby boomer men have saved, with a median 401(k) account balance of nearly $59,000, compared to more than $138,000 for men.
But this trend isn’t confined to boomers. For example, millennial women also tend to save less for retirement than millennial men, with the women having a median 401(k) balance of $12,300 in 2018, while millennial men had a median 401(k) balance of $42,300 — a difference of $30,000.
Of course you can’t save what you don’t have — as a recent survey by Salary Finance found, women tend to struggle with daily living expenses, and that they typically have more student loan and medical debt than men.
To get to the heart of women’s struggles, the T. Rowe Price survey also checked into the amount of money men and women earn each year, and they found that women, on average, make more than $21,000 less than their male cohorts.
A smaller paycheck, of course, means there’s less left over after monthly expenses are paid. Indeed, the survey found that women contribute a smaller percentage of their income to their 401(k) plans than do men. For instance, baby boomer men kick in an average of 10% of their salary to their 401(k), while baby boomer women contribute 7%.
Likewise, millennial men on average contribute 8% of their salaries, but millennial women typically put in 5%. Tellingly, 66% of women respondents who contribute less than the recommended rate reported that they are saving as much as they can afford to save.
Not only are men saving a higher percentage of their salaries, but they are also more likely to save for retirement outside of their 401(k) account. In fact, 32% of men said they saved some money in accounts other than their 401(k), compared to only 10% of women.
Other findings shed light on how retirement expectations vary between men and women. Approximately 46% of women believe they will have to lower their standard of living when they retire, compared to only 37% of men. Also, among those men and women who continue to work after they reach retirement age, women were most likely to do so because of financial needs, while men were most likely to continue working for the mental benefits.
While earning less can put you at a disadvantage when it comes to having money to set aside for retirement, there are still ways you can leverage retirement accounts to work to your advantage. For one thing, make sure you understand how 401(k) plans work so you can enjoy all of their benefits, such as 401(k) employer matching. In addition, make sure you understand all of your rollover options if you change jobs.
And if you currently don’t make enough to save for retirement, consider trying a side gig in order to have money for later in life.
