July 26, 2024 | By Theresa Conti
When we talk about how to increase 401(k) participation for women, we are really talking about why women need to save “differently” for retirement. For anyone, the considerations of how much money will be needed in retirement equates to how much can be saved and how long they may be in retirement.
Only 52% of women participate in 401(k) plans1! There are unique factors that women experience that often make them unable to save what they need for retirement. I will cover the top four that I feel play into the retirement savings gap that women often face.
The first factor is the pay gap. It is proven that women often earn less than men. And when you talk about saving for retirement, when you earn less in salary, and typically save a percentage of your salary, that equates to less money saved. When we talk about less money being put away, there is less growth compounding. So based on these factors, you can understand why the pay gap plays a significant role in women saving less for retirement. Also, many women may only work part-time and may not have access to a retirement plan (although SECURE 2.0’s provision for long-term part-time employees should help with this problem).
The second factor is the investing gap. It is often said that women are more conservative investors than men. While the reality of this claim is nuanced2, it is worth noting that more conservative investing could be a reason that women have less saved for retirement. The investing gap is also influenced by the pay gap, as not investing as much in general (the first factor) leads to less overall growth.
The third factor is caregiving responsibilities. This is something that is not thought about enough…up to 81% of caregivers (formal and informal) are women3. This includes women who step away from their careers to care for a loved one. How does that affect their retirement savings? When women leave the workforce, whether it is to care for children for a few years, when a family member has a medical issue (maybe an older child or spouse) or when they need to care for aging parents, women lose out on many things as it relates to salary and retirement savings. There is certainly an “associated cost” to leaving the workforce for a period of time when it comes to wealth factors.
The final factor is longevity. Did you know that on average women live 5 years longer than men and that 67% of people over age 85, are women4? That means that women will probably need more money in retirement as they may have more years to care for themselves. Make sure participants’ calculations for what they need in retirement include the factors for living longer.
One other thing that is not truly a factor but may come into play is divorce. It can affect retirement savings in many ways, including having less time to save post-divorce along with having a single income to save with. If participants are getting divorced, they need to figure out what they may be entitled to as it relates to the retirement savings of the ex-spouse (filing of a QDRO can be easily forgotten during a divorce). If the participant is younger and getting divorced, this can also impact their retirement savings as they may have significantly less discretionary income and may, therefore, not be able to save for retirement at the same rate.
So how do we get around these factors? Some best practices are saving more for retirement when you can…even saving 1%-2% more regularly can add up over time. Having a plan to help women track their progress and knowing where they want to be on saving for retirement is key. Even when women may need to leave the workforce for caregiving responsibilities, there are still ways they may be able to save, like a spousal IRA.
Finally, make sure participants understand why they should save for retirement because if they don’t, they may wait too long to be able to fund enough for the retirement they desire.
- https://www.kiplinger.com/retirement/401ks/women-have-significantly-less-saved-in-401ks-than-men-and-what-to-do-about-it
- https://www.morningstar.com/sustainable-investing/how-do-women-really-invest
- https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4804270/
- https://www.health.harvard.edu/blog/why-men-often-die-earlier-than-women-201602199137
