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Women Lag Behind Men In Retirement Savings

The past 60 years have been recordsetting in expanded economic and social status for women. Not only do women now comprise nearly half of the U.S. workforce, but they are also outpacing men in terms of educational achievement.

Yet, regardless of the substantial socioeconomic advances women have made, most women are not prepared for retirement. In spite of similar individual and household characteristics, women's retirement savings lag behind those of men. According to LIMRA's report, 2011 Gender Matters: Retirement Savings of Working Men and Women, women's average defined contribution (DC) plan balances are only 60 percent of men's average balances.

Numerous conditions have contributed to women's lack of retirement savings compared to their male counterparts, including persistent inequities in the workplace and larger social structures. These social structures have placed a greater burden with regard to childrearing and household tasks on women, which can have a dramatic impact on the ability of women to save for retirement and obtain enough money to live comfortably in retirement. One key indication that a secure retirement may be out of reach of many women is their lack of savings for it. Although net employee and employer contributions likely explain much of the gender difference in account balances, women's tendency to select more conservative investments could also result in lower long-term returns on investments. Another factor working against women is lower average salaries compared to men.

The Bureau of Labor Statistics' 2010 women's-to-men's earnings ratio was 81 percent. However, this ratio does not control contributing factors such as:

• Type of positions worked.

• Fields of employment.

• Number of hours worked.

• Flexibility offered by jobs.

For instance, women are more likely to seek employment roles that are more flexible in order to care for children or other family members-but such positions, may pay less.

Women may also face saving shortfalls because of their own failure to prioritize retirement savings. When LIMRA asked participants to indicate their top reasons for saving (besides emergencies and unemployment), the largest proportion of both men and women selected retirement as their most important reason for saving. However, men of all ages are more likely than women to identify retirement as an important reason for saving and differences between men and women widen among older age groups. Another circumstance that undermines women's retirement security is their lack of involvement in financial matters and knowledge of financial products. Men are more likely than women to play an active role in financial and investment matters, according to LIMRA's findings. Over half of men are very involved in managing their retirement savings, as well as investigating whether to buy a specific financial product. Whether it is the result of superior financial literacy, additional time spent researching financial products and services or simply more confidence in their knowledge, men report having more knowledge on financial products and services than women do. When rating their own knowledge of financial products and services, men are also more likely to indicate that they are "very knowledgeable" or "knowledgeable" compared with women, 29 percent and 14 percent, respectively.

How can the industry help turn this trend around? Encourage and educate. Women should be encouraged to participate in their employer's retirement plan and to save more. Because women are more likely to have work disruptions for caregiving, they need to capitalize on savings opportunities, while they are working, in order to compensate for a longer average longevity. Plan features- such as auto-enrollment to ensure maximum participation and more aggressive features for saving like auto-escalation of deferral rates-should be promoted by plan providers.

Companies should make efforts to better educate women to improve their financial literacy; it is essential to successful retirement planning. In fact, LIMRA's research reveals that improved financial knowledge could have a domino effect on preparedness since employees with similar financial knowledge levels- regardless of gender-are comparable in terms of their behavior toward retirement planning activities. Men and women who rate themselves as knowledgeable about investments or financial products are more likely than those who are less knowledgeable to be very involved in monitoring and managing their retirement savings. This finding suggests that if women were to improve their financial literacy, they may become more active in retirement planning activities and ultimately save more.

Nonetheless, saving for retirement is a challenge for both genders-especially since there are endless ways to spend money. As today's retirement savings vehicles emphasize personal responsibility, working women need to save enough to account for likely work disruptions. Making both saving for retirement and improving financial knowledge a higher priority will go a long way to getting women on track for a secure retirement.

Cecilia M. Shiner, senior analyst, LIMRA’s Retirement Research, is a project director for research related to the not-for-profit market and assists with major primary research projects conducted within LIMRA’s Retirement Research unit. She can be contacted at [email protected] [email protected].

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