When it comes to retirement income, the drumbeat of gender comparisons has been persistently gloomy for women. They are paid less than men, which means they can’t afford to save as much. They leave the work force to raise children, further dragging down their earnings. Then they’re too scared of risk to invest sufficiently in stocks. As a result, women have an average 401(k) balance of just $51,440, versus $88,100 for men, according to Aon Hewitt. Furthermore, that smaller nest egg has to last more years, because women usually live longer.
But now, at last, comes good news. Female caution may finally be paying off.
Two different studies show that women are more apt to follow experts’ advice to put their money in target-date funds, the premixed portfolios that lay out an asset allocation based on age, rather than making their own investment decisions.
In other words, women who think they’re financially lost are asking directions, while men insist they can find their own way. (Sound familiar?)
By using target-date funds, “women are rebalancing, they are better diversified, and they’re getting it right,” says Pamela Hess, Aon Hewitt’s director of retirement research.
In analyzing the nearly 120 plans that it administers, Aon Hewitt found that 55 percent of female respondents and 50 percent of males used target-date funds. Furthermore, 46.8 percent of the women put all their assets into a single date fund, as experts recommend, compared with just 37.5 percent of men.
While Aon Hewitt is still analyzing the 2010 year-end data, Hess says she’s confident that women will emerge with better results than men, thanks to the premixed portfolios. Already, the research has revealed a big jump in the equity holdings of women who use target-date funds – even pushing them slightly above male counterparts.
MassMutual Financial Group took a different approach in examining the year-end holdings of the 1.2 million people in the retirement plans it administers. While both genders had virtually the same percentage in premixed funds, women preferred the target-date version. Men were equally likely to use a less common type, target-risk funds, in which the investor selects a level of risk tolerance. Since it’s based on risk preference, which is a subjective decision, rather than the objective fact of birth date, that kind of fund gives the investor more control.
“Women are basically delegating their allocation to professional investment managers. Men have a tendency to like to have more control over their investments,” says Elaine Sarsynski, executive vice president of MassMutual’s Retirement Services Division.
Sarsynski was more hesitant than Hess to say that women were making a wiser choice, noting that men could be taking all the right steps on their own, such as adjusting the risk level of their portfolio as they grow older. Fourth-quarter average account balances for MassMutual’s female participants rose just a tad more than for males – up 5.7 percent and 5.5 percent, respectively.
For all these positive trends, the underlying situation remains depressing, however: Women still have a long way to go to catch up.
Fran Hawthorne is the author of the award-winning “Pension Dumping: The Reasons, the Wreckage, the Stakes for Wall Street” (Bloomberg Press) and “Inside the FDA: The Business and Politics behind the Drugs We Take and the Food We Eat” (John Wiley & Sons). She writes regularly about finance, health care, and business ethics.
