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Women Narrow the Pension Gap but Still Lag Behind Men

Retirement: On average, they save just 44 cents for every dollar that males do in defined contribution plans or IRAs.

November 07, 2000|KATHY M. KRISTOF | TIMES STAFF WRITER

Diligent saving by middle-aged women is beginning to narrow the pension gender gap, but women are still drastically behind men in saving for retirement, according to a just-released analysis of consumer finance data.

"Women are better off, but they are still pretty bad off," says Vickie L. Bajtelsmit, assistant professor of finance at Colorado State University and co-author of the study.

On average, women have saved just 44 cents for every dollar that men have saved in defined contribution pensions or individual retirement accounts. That's an improvement from where women were roughly a decade ago, when they had socked away only 40 cents for every dollar that men had in such plans.

But it's still likely to be far shy of what they need. Because women live longer, they need considerably more in retirement savings than men. The bottom line: Women are still far more likely than men to end up impoverished when they're old.

Still, there are some signs of improvement on several fronts, says Bajtelsmit, who draws her conclusions from analyzing the Federal Reserve Board's survey of consumer finances, an exhaustive study that's done once every three years. The latest consumer finance study, covering 1998, was released in January 2000. Bajtelsmit examined whether women with full-time jobs were making any progress on retirement savings.

The findings:

* Forty-five percent of employed women participated in a pension or retirement plan at work in 1998, compared with 43% in 1989. Men's pension participation declined modestly to 52% from 53%.

* The percentage of women covered by so-called "traditional" pensions, which offer set monthly payments for life, declined to 16% in 1998 from 28% in 1989. However, the percentage covered by defined contribution plans--the type of pension that offers no monthly income guarantees but pays out what you (and your employer) pay in, plus investment earnings--jumped to 33% from 23%. The trends with men's pensions were similar, but men were more likely to be covered by all types of pensions. Some 19% of men are covered by traditional pensions, while 40% are covered by defined contribution plans.

* Women of all ages are investing more aggressively--a positive sign. But they still invest more conservatively than their male counterparts. In 1998, only 20% of women said their assets were predominately in bonds, which pose less investment risk, but provide lackluster long-term returns, compared to 32% invested mainly in bonds in 1989. Notably, only 14% of men invested primarily in bonds in 1998, but 31% of men said they invested primarily in bonds in 1989.

Additionally, Bajtelsmit's study followed how pension balances increased by age group, figuring that the 18-to-26-year-olds in the 1989 study would be in the 27-35 year-old category in 1998.

The findings: Men's accounts were growing much faster than women's, with one exception. Women in the 45 to 53 age group managed to grow their defined contribution pension balances by 224% over the course of the decade vs. men in the same age group, whose balances grew just 80%. Bajtelsmit speculates that women in this category had reentered the work force and used their additional earnings to catch up on their retirement savings. In all other age categories, women's defined benefit pension balances were growing considerably slower than men's, possibly due to their more conservative investment choices.

If women want to make significant progress, they should consider a handful of simple steps, Bajtelsmit said.

First and foremost, they ought to start contributing to their work-based retirement plans as early and aggressively as they can. If you're offered a 401(k) plan at work, contribute the maximum possible from the first moment you're eligible, she advises.

"We all know that money saved early is the most valuable savings," she said. The reason: Compound interest works wonders over long periods of time.

It's also important to invest long-term assets in stocks, says Bajtelsmit. Some women are reluctant to put their money into stocks because they watch the day-to-day movements of the market and conclude that they're putting their hard-earned savings at risk. However, it's riskier to invest too conservatively when a long time horizon is involved.

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