HEW Hewitt Associates

Despite having a more powerful presence in shaping today�s workforce, women continue to be less prepared for retirement than men, according to a new study by Hewitt Associates, a global human resources consulting and outsourcing company. In fact, Hewitt�s study not only found that women need to save more for retirement than men, but it also highlighted that the gap between the amount women need to save and the amount they are actually saving is larger than the gap for men. Moreover, this gap will continue to grow due to lower salaries, conservative investing, longer life expectancies and higher retiree medical needs. The study, which examined the projected retirement levels of nearly 2 million employees at 72 large U.S. companies, found that both men and women are on track to replace 85 percent of pay at retirement, assuming average life expectancy. However, women, on average, need to replace nearly 130 percent of their final pay at retirement�7 percentage points more than men. When factoring in differences in longevity, that disparity jumps to 10 percentage points. In other words, the average woman will need to save 2 percent of pay more per year than the average man, over 30 years, to achieve the same standard of living. �There are multiple barriers women face that automatically put them at a disadvantage when it comes to meeting adequate retirement income levels�some of which are preventable and some of which are not,� said Alison Borland, defined contribution consulting practice leader at Hewitt Associates. �But despite these challenges, it is possible for women to make a significant impact on the amount they amass in their retirement nest eggs if they are willing to understand the challenges they face and take a few small steps toward improving their saving and investing behaviors.� Factors Affecting Women�s Retirement Readiness Hewitt�s study and other research reveal that multiple factors�both financial and socioeconomic�contribute to the gap in retirement income replacement rates between women and men. Those factors include women�s likelihood to: � � � -- � Make less and live longer. Despite the fact that women's income has increased 63 percent in the past 30 yearsi, their salaries still trail men's, with the average woman earning just $57,000 a year compared to $84,000 for the average man in Hewitt's study. In addition, women are expected to live almost three years longer than men�an average of 22 years after retirement at age 65 compared to just 19 years post-retirement for men. As a result, most women will need to save more to make their retirement savings last over a longer stretch of time. In addition, because medical costs after retirement are a flat dollar amount for all employees, those costs will consume a higher percentage of women's retirement assets than men's. � -- Invest less assertively. Recent Hewitt research reveals that most women have less money saved in their 401(k) plans than men. The average plan balance for women is $56,320�nearly $47,000 less than men. In addition, women tend to contribute less (7.3 percent of pay versus 8.1 percent for men) to their 401(k) plan, and they are less likely to take advantage of the employer match. Thirty percent of women did not contribute to their 401(k) plans in 2007 and another quarter (24 percent) did not contribute at a level high enough to take advantage of the company match, which, according to Hewitt research, is typically $0.50 for every dollar up to 6 percent of pay per year. � Hewitt research also shows that women are less aggressive than men with respect to saving and investing in their 401(k) plans. Women invest less in riskier equity investments (65 percent for women compared to 71 percent for men), and are about half as likely as men to make a trade (13 percent versus 24 percent). � Additionally, women tend to choose investments and let them stick more often than men. Just over a quarter (26 percent) make changes to their contribution rate each year compared to 30 percent of men. � -- Delay retirement saving and have spotty saving patterns. Not surprisingly, Hewitt's study reveals that the earlier and more consistently employees save for retirement, the greater the impact on increasing overall income replacement rates. Unfortunately, Hewitt research also shows that women wait 2 to 4 years longer than men to start saving for retirement. In addition, they are more likely to be in and out of the workforce for family reasons, which can result in hundreds of thousands of dollars in missed earnings, promotions, raises and benefits over the course of a career, including larger deficiencies in retirement savings. How Can Women Close the Gap? Despite the challenges they face, it is possible for women to get to a more comfortable place in retirement. In fact, making a few easy changes to their saving and investing behaviors can have a significant impact in helping women shrink the retirement income gap and get to more appropriate retirement levels. � � � -- � Invest earlier and at a more vigorous rate. Hewitt research shows that the age at which employees start saving has a significant impact on their retirement balances. Women could potentially increase their nest egg by 18 percent simply by investing 2 years earlier than they do now, or 23 percent by investing just 4 years earlier. � In addition, women can increase their projected retirement income rates an average of 7 percent simply by investing just 2 percent of pay more a year in their 401(k)s. A woman who makes an average salary of $57,000 and who increases her annual 401(k) contribution from 2 percent to 4 percent�an increase of just $95 per month�will have accumulated an extra $81,000 by the time she reaches retirement age. What's more, she will tack on an extra $40,500 by having contributed at a rate high enough to take advantage of her employer's company match program. � -- Put off retirement for a few years. While most employees, including women, estimate they will retire by age 65, working just 2 years longer to age 67 can increase projected retirement replacement income levels by 13.5 percent for women who contribute to their 401(k) plans. And because women will have more money to live on during their years in retirement, their retiree medical costs�typically a flat dollar amount on an annual basis�won't eat up as large a percentage of their savings had they retired at age 65 or earlier. � -- Take advantage of advice. According to industry research, a staggeringly high number of women�90 percentii�have said they feel insecure when it comes to managing their finances. Thankfully, an increasing number of companies offer services and tools that not only help women feel at ease and make them more comfortable negotiating the financial landscape, but also put them on the right track to save more money in the long run. According to Hewitt research, 43 percent of companies offered online, third-party investment advisory services in 2007 and another 47 percent planned to offer them in 2008. In addition, nearly one quarter (22 percent) offered managed accounts, up from only 15 percent in 2007. � -- Keep money invested in 401(k) plans. According to Hewitt research, 45 percent of employees cash out their 401(k) plans when they leave a job. Although it seems tempting�and intuitive�to cash out 401(k) savings, particularly when taking time off to care for family, employees will forfeit 20 percent or more of their account's value in federal taxes and another 10 percent in early withdrawal penalties. Women should keep their money in their companies' 401(k) plans, even when switching jobs or exiting the workforce. By doing so, they can continue to grow their savings in a tax-free environment and, in many cases, avoid higher investment fees typically associated with retirement savings accounts offered in the retail market. About Hewitt Associates For more than 65 years, Hewitt Associates (NYSE:HEW) has provided clients with best-in-class human resources consulting and outsourcing services. Hewitt consults with more than 3,000 large and mid-size companies around the globe to develop and implement HR business strategies covering retirement, financial and health management; compensation and total rewards; and performance, talent and change management. As a market leader in benefits administration, Hewitt delivers health care and retirement programs to millions of participants and retirees, on behalf of more than 300 organizations worldwide. In addition, more than 30 clients rely on Hewitt to provide a broader range of human resources business process outsourcing services to nearly a million client employees. Located in 33 countries, Hewitt employs approximately 23,000 associates. For more information, please visit www.hewitt.com. i Suze Orman, Women & Money: Owning the Power to Control Your Destiny (Spiegel & Grau, 2007). ii 2006 Allianz Insurance Survey