I recently ran across some interesting data on the differences between men and women when it comes to investing for retirement. What follows is based on “How America Saves 2011,” which is Vanguard’s annual report on retirement plans.
And yes, I realize that it’s dangerous to generalize, but there are some interesting nuggets of wisdom in here…
According to the report women who earn between $30k-$100k/year are more likely to participate in their workplace retirement plan than men in the same income range. The differences aren’t always huge, but they’re definitely noticeable. For example, in the $50k-$75k range, 78% of women joined their retirement plan vs. just 68% of men. Moving outside of that range (below $30k or over $100k) the situation reverses, and men are slightly more likely than women to participate.
Women who have joined their employer’s retirement plan also tend to save more than men. For example, returning to that $50k-$75k range, women put an average of 7.4% of their income into their retirement plan vs. 6.8% for men. Looking more broadly across the data, women out-contributed men by a 6.9% to 6.7% difference, and they have done so in seven of the past ten years.
While the difference here isn’t huge, it adds up over time. For example, consider someone at the top end of that $50k-$75k pay range. The extra 0.6% they’re saving amounts to “just” $450/year. But if we hold that contribution rate constant over time and assume an annual salary increase of 3.5% on that base $75k salary along with an 8% investment return, we’re talking about nearly $80k more in savings over 30 years.
On average, women tend to have a more diversified investment portfolio than men. In 2010, women held and average of 10% of their portfolio in bonds funds vs. 9% for men, and women had an average of 25% of their account balance in balance (stock + bond) funds vs. 22% for men. This isn’t necessarily a good or bad thing, as it really just means that men are slightly more aggressive in their investing, and it ignores factors such as age.
Nonetheless, this difference appears to have served women well during the recent market downturn, as the average woman’s retirement account grew more than the average man’s retirement account from 2005-2010. Of course, this also includes contributions, so the higher savings rates mentioned above contribute to this difference.
Based on an analysis of IRA accounts, men were 10% more likely to abandon stock between January 2007 and October 2009. Of course, we all know what happened at the tail end of that time period – the S&P 500 skyrocketed 56% from March to September 2009. While a lot people jumped back in during this run up, many of them sold near the bottom and then missed at least part of the recovery.
Putting it all together
When you read through the above, it sounds like women are (on average) doing very well when it comes to retirement investing… And yet the median account balance for women in employer-sponsored plans was just over $21k vs. more than $33k for men. In terms of averages, the difference was even greater – $96k vs. $59k.
What gives? According to the report, though women have better investing habits, they tend to have (again, on average) shorter job tenures and lower incomes. In other words, they have much more to overcome when it comes to preparing for retirement.
As for why women are better investors, Vanguard suggests that women might be more likely than men to seek advice – and to follow the instructions that they are given. At the same time, economists have suggested that men then to overestimate their investing abilities which can result in bad decisions and poor results.