What Men Can Learn From Women About Saving for Retirement

by Jean Chatzky /  / Updated 

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To the list of things women do better than men (graduate college, eat healthier and about a dozen others according to Cosmopolitan) let’s add managing their 401(k)s.

A recent study from financial services giant Vanguard looked for gender differences among participants in defined contribution plans -- 401(k)s, 403(b)s and the like -- and discovered that although men have larger account balances, women may manage the assets better over the long run.

What do women do differently? For one thing, they get in the game. Women were 14 percent more likely to participate in 401(k)s and other defined contribution plans than men. Women were also less likely to trade frequently, a practice that can erode returns. And despite having a reputation for being risk averse, women were just as likely as men to own equities, according to the study.

When it came to five-year returns, men slightly outgained women in their 401(k)s – 10.9 percent compared to 10.6 percent -- but the researchers chalk that difference up to the fact that men had average account balances that were 50 percent higher than women’s (ahem, salary gap, ahem) and were more likely to hold higher equity exposure -- a strategy that worked well during the period studied.

Men also tend to work more years without interruption, giving them more time to make contributions while on the job.

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This latest view of the battle of the sexes can be instructive, says Jean Young, senior research analyst in the Vanguard Center for Retirement Research and author of the report. But the bottom line is “both men and women would be better off if they saved more for retirement.” And right now most people in America aren’t saving nearly enough.

So here’s some gender-neutral advice for making the most of any retirement plan:

Get in the game

You can’t win if you don’t play. Simply participating in your company’s 401(k) or other retirement plan is a first and mandatory step to success. The continuing trend for companies to use automatic enrollment helps here. In fact, when Vanguard looked only at automatic enrollment plans, men and women participated at the same rate, suggesting men may be benefitting more than women from this trend.

Don’t go on autopilot

One of the negatives of auto enrollment, however, is the tendency for inertia to set in, leading participants to stay at the same contribution rate over time, writes John Rekenthaler, vice president of research for Morningstar, in a blog post. Worse, that auto-enrollment rate is often set at 3 percent, which is too low for long-term success. At least once a year take a look at how much you are contributing and see if you can increase your contribution by 1 percent or more. And always make sure you’re kicking in enough to grab any matching dollars your company provides.

Understand risk

“There’s a difference between taking a calculated risk and gambling,” says Tim Maurer, financial advisor and director of personal finance for the BAM Alliance. “The latest hot biotech stock is a gamble.”

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But carefully calculating how much equity you need in your asset allocation to meet your retirement goals, factoring in your age and financial situation, is using risk wisely, he says. “Ask yourself, ‘what is your ability, your willingness and your need to take risk?’”

Get help when you need it

Separate Vanguard research shows that retirement investors who use managed accounts, target date funds and balanced funds (all of which help you with asset allocation) consistently outperform investors who construct their own portfolios. Not everyone is a crack stock picker or portfolio builder. Don’t be afraid to rely on the tools available to make sure you’re properly diversified.

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