How Gender and Generation Impact Retirement Saving

Men and women aren’t really from different planets, no matter what psychotherapist John Gray argued in his 1992 best-seller. But men and women tend to behave differently when it comes to saving and investing for retirement.

In a 2015 study of male and female participants in more than 2,000 defined contribution retirement plans, researchers at the Vanguard Center for Retirement Research found that women participate in their plans at higher rates than men, and also save more. But despite higher levels of participation and savings among women, men held higher account balances due to higher salaries. However, the growth of automatic enrollment as a retirement plan design feature is starting to narrow the gap.

Cynthia Pagliaro, a senior research analyst with the Vanguard Center for Retirement Research, presented these findings during a presentation at the 2016 SVIA Spring Seminar. In the plans that Vanguard studied, she said, 73 percent of eligible women participated in their retirement plans, versus 66 percent of eligible men. The numbers were skewed even more where enrollment was voluntary; in those cases, 66 percent of eligible women participated, versus 58 percent of eligible men. But where enrollment was automatic, 89 percent of both genders participated.

Savings rates followed a similar pattern. Women deferred 7 percent of their salary on average, versus 6.8 percent for men. Women participating in their plan voluntarily saved 7.5 percent, versus 7.1 percent for men. But where enrollment in the plan was automatic, men actually saved more: 6.2 percent of salary, versus 5.9 percent for women. Men, Pagliaro said, show a greater propensity to override their plan’s default savings rate.

Neither gender is particularly savvy when it comes to personal finance and investing, however. Asked three financial literacy questions, only 25 percent of women and 40 percent of men answered all three correctly. Even among college graduates, Pagliaro said, only 44 percent of those surveyed got all three answers right.

In terms of how they invest, women and men allocated similar amounts to equities—73 percent of assets for women, 74 percent for men. However, men were 50 percent more likely to trade within their accounts. It didn’t seem to hurt their investment returns, though. Over the past five years, Pagliaro said, men earned a median return of 10.9 percent in their retirement accounts, versus 10.6 percent for women.

There were, however, big gender-based differences in retirement account balances. Among women, the average account balance was $79,572, versus $123,262 for men. The median account balance among women was $24,446, versus $36,875 for men. The explanation, Pagliaro said, was not in the average age or tenure of the male and female participants. Rather, it was income: men earn about 25 percent more than women. Pagliaro said one recent study suggests that over half the wage gap can be explained by occupational choice or opportunity. Women, she said, are more likely than men to have lowerpaying jobs.

On a brighter note, Pagliaro said the wage gap between men and women is improving. “Back in the late 1970s it was about a 40 percent differential, now it’s 20 percent or 22 percent, much of it driven by increased educational levels among women,” Pagliaro said. “In fact, women today are far more likely to graduate from college than men. That was not the case in the late ’70s. There also are more women in the workforce today, so more work experience is leading to that gap closing.”

In addition to looking at how saving and investing patterns differ by gender, Vanguard also looked at how those patterns differ by generation. To do that, it first classified participants into four generations: millennials (between the ages of 18 and 34), Generation Xers (between the ages of 35 and 49), late baby boomers (between the ages of 50 and 59), and early baby boomers (between the ages of 60 and 69). Vanguard looked at what each of those generations was doing in 2013, then looked back at what people of the same age were doing in 2003. For consistency, it looked only at plans that Vanguard continuously administered during that 10-year-period.

“In terms of retirement plan savings, all generations have experienced improvement over that 10-year period,” Pagliaro said. “However, the largest improvement is accruing to the millennials, with much of that driven by auto enrollment.”

In 2003, only 51 percent of eligible employees between the ages of 18 and 34 were participating in their workplace retirement savings plans, Pagliaro said. By 2013, that percentage was up to 87 percent. Gains for the other age groups were smaller; for late boomers, for example, the participation rate rose to 92 percent from 73 percent.

For each age group, contribution rates have improved, too. Today’s millennials were contributing 6.6 percent of their salary to their plan in 2013, for example, up from 4.2 percent for that age group in 2003. Those figures include both participant contributions and employer matches, Pagliaro noted.

Pagliaro said millennials are very concerned about investment risk, having already lived through two great bear markets. The first began with the bursting of the tech-stock bubble in 2000, the second with the real estate crisis that erupted in 2007. Nonetheless, Pagliaro said, millennials seem to be doing better in terms of portfolio diversification than participants their age a decade earlier. “Automatic enrollment and default deferrals into target-date funds seem to be helping,” she said. In auto enrollment plans, she said, Vanguard sees significant adoption of professionally managed asset-allocation strategies, either in the form of target-date funds, other types of balanced funds or managed account programs. Those adoption rates, she added, are highest among millennials.