Want A More Secure Retirement? Act Like a Woman


By Walter Updegrave, RealDealRetirement @RealDealRetire

Men’s are bigger than women’s—401(k) balances, that is. But don’t let that fool you. When it comes to preparing for a secure retirement, women may very well have the edge—and men would do well to emulate them in several key areas.

I’m skeptical of studies and surveys that purport to show big differences between men and women in the way they handle finances. I’m not saying that men and women face financial issues exactly the same way. But I think there’s a tendency to overstate differences, or attribute disparities to gender when there may other underlying causes.

And yet…I was intrigued by a recent infographic showing differences between men and women 401(k) participants. Citing data from How America Saves 2014, a report on the plans and participant behavior of the 401(k) plans it oversees, Vanguard noted that at most income levels women are more likely to participate in their 401(k) plan than men, more likely to sign up for the plan when it required voluntary enrollment and, perhaps most important, women tend to contribute a higher percentage of income to their 401(k) plan than men.

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For example, women earning $75,000 a year or more contribute roughly a full percentage point more of salary than their men with the same earnings. Over the course of one’s career and retirement, a one percentage point edge can mean an appreciably larger nest egg and dramatically more retirement income.

But if women are superior savers, then what explains the fact that the report also shows that men have higher 401(k) balances–just over $121,000 on average vs. roughly $78,000 for women.

The report notes that the gap is largely because men have higher incomes and more time on the job than women. Which suggests that if women earned the same amount as men and had the same job tenure, that they would have more money socked away in their 401(k)s than men.

Or would they?

Although I believe saving is the single most important thing one can do to build a nest egg, there is another factor that comes into play:  investing. Even if men and women earned exactly the same amounts and saved at the same rates one group might end up with higher retirement account balances by earning higher rates of return on savings. So how do men and women compare as investors? Does either sex tend to generate superior performance results?

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That’s not an easy question to answer definitively. There are plenty of news stories and articles that assert that women are better investors. They typically cite the fact that an index of hedge funds run by women has outperformed a broader hedge fund index, and that a study of more than 35,000 households’ discount brokerage accounts showed that more frequent trading by men reduced their net investment returns by almost a full percentage more than women’s trading lowered their returns.

I wouldn’t call this evidence overwhelming. The number of women hedge fund managers is very small and the variation of hedge fund strategies very wide, so I’m not sure what, if anything, one can draw from those results. As for the discount brokerage study, if you read it closely, you’ll see that even though men traded more than women and their more frenetic trading had a greater negative impact on their performance, the authors don’t say that men ultimately ended up with lower returns than women. Indeed, they say that there was no statistically significant difference in returns.

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Nonetheless, I still contend that the way women approach investing is more conducive to long-term retirement security. In a blog post earlier this year, for example, BlackRock investment strategist Nelli Oster cited research showing that  women tend to take more time to research investments, they’re more patient, they  seek opinions from others in hopes of finding a consensus and they’re more likely to see investing as part of a long-term planning process to achieve a goal rather than as a contest or competition. They also may be less likely to bail out of stocks in times of stress, as noted in a study of investor behavior during the financial crisis.

All of these traits can have downsides. One person’s patience is another’s wavering or indecisiveness. A consensus-driven approach may keep one from contrarian investments that can lead to big gains. It’s not as if women have all the answers and men are just floundering.

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The truth is that neither women nor men have this whole saving, investing and planning thing nailed. Both can improve, and can learn a lot from each other. And let’s not forget that not all women, or men, approach retirement planning the same way. There’s plenty of variation on both sides.

Still, when it comes to what’s most important in retirement planning—saving diligently, investing in a disciplined manner and assuring that one’s saving and investing are part of a long-term plan designed to reach a specific goal—I think the approach that’s generally ascribed to women has a greater chance of achieving a secure retirement, and is the better way to go whatever your gender.  (9/26/14)

Walter Updegrave is the editor of RealDealRetirement.comIf you have a question on retirement or investing that you would like Walter to answer online, send it to him at walter@realdealretirement.com.

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