Women Closing Retirement Balance Gap but Still Need Long-term Strategy

Data from late 2012 show women in the United States closing the gap in defined contribution plan balances and savings rates compared with their male counterparts, but gaps remain in women’s retirement funding strategies that plan sponsors can help address.

Although female plan participants long have been known to save less than men for retirement, statistics compiled by MassMutual insurance company for the fourth quarter of last year found that the average deferral rate for female participants was up to 5.38 percent, an increase of 1.6 percentage points for the quarter. Male participants are saving at 5.81 percent on average, an increase of 1.2 percent from the third quarter of 2012.

MassMutual’s data shows the gap is gradually but consistently closing. Since the third quarter of 2010, when the average account balance among female participants trailed that of men by 40.49 percent, the chasm gradually has been closing. In the most recent quarter for which MassMutual has reported, the average account balance among females was 38.25 percent behind their male colleagues, a quarterly improvement of 2.49 percentage points.

“We have customized our participant education offering on a number of fronts to drive action among specific segments such as women, and the progress we are seeing indicates that participants are responding favorably,” said Elaine Sarsynski , executive vice president of MassMutual’s Retirement Services Division and chairman, president and chief executive officer of MassMutual International LLC. MassMutual has approximately 3 million participants, it reported in a March 6 press release on the data.

A strong majority (73 percent) of retirement asset allocation investments for women are age-based strategies, such as target date funds, while men are almost evenly divided between TDFs and risk-based strategies, at 52 percent vs. 48 percent, respectively, MassMutual said.

While women’s retirement savings and account balance deficits are narrowing, other recent research shows that DC plan sponsors can assist with retirement readiness in several ways.

The 13th Annual Transamerica Retirement Survey, titled Juggling Current Priorities and Long-Term  Security: Every Woman Needs Her Own Retirement Strategy, highlights many women’s lack of a defined strategy for accumulating and managing the amount needed for expenses after they finish their careers.

In the February survey, nearly half of women respondents said they had no retirement finance strategy at all; 41 percent said they had one but it wasn’t written down. Just 11 percent said they have a written retirement game plan. The majority of women (56 percent) said they expect to fund their own retirement through 401(k), 403(b) or similar accounts or other savings and investments. Thirty percent in the survey said they expect to rely on Social Security as their primary source of retirement income.

For plan sponsors, these answers offer some opportunities. Because women’s life expectancies are longer than men’s, women need to save more for retirement. In recognition of this, 51 percent of those responding in the Transamerica report said they seek advice but want to make their own decisions about retirement funding. Nineteen percent said they want someone else to manage their savings for them, but only 35 percent reported using a professional adviser, a service sometimes provided by plan sponsors. (See ¶413 of the The 401(k) Handbook for more on participant-directed investment accounts.)

The most obvious chance for plan sponsors to improve women’s savings and strategic goals for retirement is likely to be through participant education. In the study, 75 percent agreed that they did not know as much as they should about retirement investing. Educational materials that are “easier to understand and/or a good starting point that is easy to understand” were mentioned as desirable by more than half the women in the Transamerica study.

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