Bridging the Retirement Savings Gap: Leveling the Playing Field for Women
As another March and Women's History Month comes to a close, it's imperative to turn the spotlight on women and their retirement preparations. Women often face unique challenges when saving for retirement, resulting in a profound retirement savings gender gap. This gap makes it essential for retirement Plan Sponsors to take proactive steps to automate involvement in the organization's retirement plan.
Lagging Incomes - a Pew Research Study shows that despite being just under half of the US work force, outnumbering their male counterparts in obtaining a bachelor's degree, the gender pay gap persists. In 2022, US women earned $.82 for every dollar US men earn. For reference, it was $.80 twenty years ago, so the gender pay gap has stagnated.
Living Longer & Less Savings - Research from the National Institute on Retirement Security (NIRS) indicates that women are more likely to outlive their savings and face higher healthcare costs in retirement. In fact, the median retirement account balance for women is only $23,000, compared to $76,000 for men, according to a 2021 study by Vanguard.
Caregiving - Further compounding the savings issue is that women are more likely to take time out of the workforce, or spend time underemployed for work-life flexibility, to allocate time for caregiving responsibilities. That time spent can significantly impact their retirement savings, according to a 2018 report by the Center for American Progress. Women are often "sandwiched" caring for children and aging parents.
Confidence - According to the "Retirement Readiness: Women and Men Diverge on Longevity Risk, the Economy and Retirement Plans" report by the Transamerica Center for Retirement Studies, many women lack access to resources or information about retirement planning, leading to lower participation rates and insufficient savings. The 2019 report found that only 12% of women feel very confident in their ability to fully retire with a comfortable lifestyle, compared to 21% of men.
As a retirement plan Plan Sponsor, you should be considering implementing policies and practices that promote equality within the workplace. The pandemic has been greatly impactful for women in the workforce. Studies have shown that providing flexible work arrangements in hours worked or location worked can positively impact women's retirement outcomes, also keeping women in the workforce.
By incorporating automated features in your retirement plan you can take some of the guess-work and ultimately address some of the lack of confidence. Automatic enrollment, automatic increase, and use of a default investment option helps to overcome indecision and inertia.
Automatic enrollment puts workers into the plan, when they don't affirmatively enroll in the retirement plan. Not only does this help overcome inaction, but when partnered with an appropriate initial savings rate, participant feedback indicates it also helps inform workers about what they should be saving in order to get to a comfortable retirement. Automatic Increase provision is where the employee’s contribution is continued to be increased a small amount on an annual basis, say 1% or 2%. Workers have the ability to opt-out or stop the increase at any time.
A diversified investment default puts workers into an appropriate investment allocation of stocks, bonds, and cash. This takes the sometimes paralyzing choice out of workers hands of selecting investments, though your more seasoned investors have the opportunity to elect to pick their own investment options from a broader menu.
These are not women specific solutions, and rising tides lift all boats. Automatic enrollment has been shown to get 85-90% of all employees into their organizations retirement plans and stay enrolled. Automatic Increase has the benefit of encouraging increased savings rates for all employees. Default investment options get savers into appropriate models of investments with diversification among investment options - stocks, bonds, cash; market capitalization sizes, domestic and foreign markets, and potentially some specialty exposure. It also provides professional investment management for the 'Do-It-For-Me' investor so they don't have to monitor the markets and make decisions about their portfolio.
Addressing the retirement plan gender gap requires a concerted effort that prioritizes awareness, intentional retirement plan design choices, education, and supportive workplace practices. By taking proactive steps to empower and advocate for our female employees, we're committed to leveling the playing field and ensuring equitable retirement outcomes for all employees. If you're looking for a Retirement Plan Advisor to help you start or manage your retirement plan, email us today, Christina.Tunison@lpl.com.
This information is not intended as authoritative guidance or tax or legal advice. You should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.
#562188 March2024