LINCOLNSHIRE, Ill., June 21, 2016 /PRNewswire/ --Men and women are on equal footing when it comes to 401(k) plan participation, but research from Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE:AON), shows that this equality doesn't hold true when evaluating overall retirement readiness. The data reveals 83 percent of U.S. women aren't saving enough to meet their needs in retirement, compared to 74 percent of men.
Aon Hewitt projects women will need 11.5 times their final pay to meet their needs in retirement, compared to just 10.6 times pay for men. However, there is a gap of 3.3 times pay between what women need and what they're actually on track to have saved in order to retire at age 65. For men, the difference between needs and resources is just 2.0 times pay. This shortfall means women, on average, will need to work until age 69–one year longer than men– in order to meet 100 percent of their needs in retirement.
"Women face significant stumbling blocks when it comes to saving enough for retirement, including longer lifespans, lower salaries and a greater likelihood of taking hardship withdrawals from their 401(k)s," explained Virginia Maguire, director of retirement products and solutions at Aon Hewitt. "Making retirement and financial wellbeing a priority is paramount for overcoming those challenges."
While women and men are participating in employer 401(k) plans at the same rate (79 percent), a new report from Aon Hewitt, which examined the retirement saving and investing behaviors of approximately 3.5 million defined contribution (DC) participants from more than 125 employers, revealed women are saving less. On average, women are contributing 7.5 percent of salary to their 401(k), more than a full percentage point behind their male counterparts (8.7 percent) further creating a gap in savings. Lower savings rates combined with disparities in salaries are contributing to low 401(k) plan balances for women. In 2015, women had an average plan balance of $71,060 compared to $119,150 for men.
Aon Hewitt suggests employers can take steps to help women close the retirement savings gap, including:
Offer tools to improve overall financial wellbeing. According to Aon Hewitt's 2015 Financial Mindset Study, more than four out of 10 women cite affordability as the biggest barrier to saving for retirement. Employers can offer tools and resources such as health care and financial market education, budgeting and debt management to help women better manage day-to-day and long-term financial plans.
Provide professional investment help. Workers who use professional investment help in the form of managed accounts, target-date funds and professional advice fair better than those who invest on their own. Offering access to these investment options as well as online or in-person advice can help workers benefit from the expertise of professionals and potentially improve their long-term financial outlook.
Add plan features to increase savings rates. Helping workers save more should happen from the moment they join their employer's 401(k) plan. Defaulting workers into the plan at a higher savings rate, such as 6 percent or higher, can make a significant impact on long-term savings. Employers can also add automatic contribution escalation features that will slowly increase workers' savings rate over time.
"When employers take an active role in helping all workers improve their financial wellbeing and save more for retirement, women will benefit," continued Maguire. "Small changes to plan design and an improved focus on day-to-day finances can go a long way to closing the savings gap."