American women save less for retirement through their DC plans and are more likely to default on loans taken out of their retirement savings than their male counterparts, according to a new report.

A 2013 Aon Hewitt study reveals that while women participate in their workplace DC plans at the same rates as men, they save less—an average of 6.9% of pay, compared with 7.6% for men. Also, nearly one-third of women contribute below the company match threshold, compared with just one-quarter of men.

Less prepared
As a result, women have average plan balances that are significantly smaller than men’s. This is consistent across all salary ranges. The numbers show that, overall, the average plan balance for women is $59,300, compared with $100,000 for men.

Additionally, the study reveals that while women and men take loans from their retirement savings at similar rates, females are more likely to default on a loan at job termination than men. Nearly three-quarters of women who faced employment termination with an outstanding loan defaulted on that loan, compared with 64% of men.

“There is little impact to long-term savings if loans are repaid in full and if individuals continue to contribute to their retirement savings while they repay the loan,” says Patti Balthazor Björk, director of retirement research at Aon Hewitt, explaining that the real threat comes when participants default. “Unpaid loans are subject to taxes and penalties that create a permanent loss from workers’ retirement savings.”

All of these factors, coupled with longer life expectancies, leave many women underprepared for retirement. Full-career contributing women should have 11.2 times their final pay to meet their retirement needs, but they are actually on track to accumulate only 8.6 times final pay—leaving a shortfall of 2.6 times pay, according to Aon Hewitt. By contrast, men have a projected shortfall of only 1.9 times pay.

So what can be done to remedy this situation?

Higher investments
One survey recommendation for women is to increase contributions and/or start to save earlier.

In order to collect enough retirement savings, individuals without pensions would need to have at least 15% of compensation set aside annually if they start saving at age 25, according to Aon Hewitt data. Starting the process at age 35 increases this amount to nearly 25% of pay every year. Increasing retirement contributions by as little as 1% each year for five years and maintaining that higher savings rate until retirement can allow the average employee to retire at 65 with adequate savings.

Company match thresholds
Women who contribute below their companies’ match thresholds essentially miss out on free money. So another piece of advice the report offers is for females to increase their DC plan contributions to the match level. For instance, the average woman, receiving a company match level at $1 per $1 up to 6%, who contributes 3% of pay to her plan will have $772,500 at retirement age.

However, if she saves the full 6% of pay (the typical company match level), she could have $1,545,000 at retirement age—double the retirement savings.

Automatic features
Yet another recommendation of the study is to use automatic features, such as auto-escalation, in order to gradually increase the amount saved. However, in many retirement plans, workers have to actively choose this option. Only 15.4% of women enrol in auto-escalation, according to Aon Hewitt.

The survey is based on 140 DC plans representing 3.5 million eligible employees in the United States.

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