The wage gap has implications for women that expand well beyond their time on the job.
While men and women contribute to their 401k at similar rates—7.9% and 7.5% of income, respectively—this seemingly small difference can compound over the course of someone’s life, according to new data from Human Interest, a 401k provider for small and medium-sized businesses (SMBs).
“It’s no secret that women earn less than men, with a woman, on average, making around 80 cents for every dollar a man makes,” said Jeff Schneble, CEO of Human Interest, said in a statement. “We hear all the time about how serious this 20-cent differential is, but we fail to put this difference in context: What does it mean over the course of a 40-year career?”
Schneble adds that after 40 years of earning the average salary for their gender, a man would end up with a 401k balance that breaks down into a $2,200 payout every month for the rest of his life whereas a woman would have 30 percent less—only $1,500 a month.
“Just like savings can compound, the wage gap can compound, too, into something much bigger—and in this case—more financially devastating by the time a woman reaches retirement,” he notes.
The Math: Difference 0.4 Percent Can Make Over Time
Take two 25-year-olds, a man and a woman. Each earns the average salary for their gender and contributes 7.9% and 7.5% to their respective 401k.
If that 401k gets 5% returns over the course of 40 years, the man and woman will reach retirement age with a difference of more than $100,000 in the size of their savings.
Key Findings: How SMB Employees Save for Retirement
Data shows that SMB employees across the board will invest when given access to a vehicle to help them save for retirement. Across demographics and industries, people contribute between 5% and 10% of their salary when they have access to a workplace 401k.
Married People Save More with Married Women Leading the Charge
Compared to people who are single or divorced, married people contribute the highest percentage of their income to their 401k:
- On average, married people are allocating 8.2% of their income to their 401k. Those who are single contribute slightly more than those who are divorced, (7% and 6.8%, respectively).
- In general, men are contributing a higher portion of their income to their 401k than women. However, the one exception is married women: Married women are saving more in their 401k, at 9% vs. just 8.2% for men. This data suggests that married women working at SMBs and contributing to their company 401k will have less of a shortfall in retirement.
No Employer Match? Not a Dealbreaker
While offering an employee match can drive plan participation, an employer gives employees a strong vehicle for retirement savings by simply providing a 401k:
- On average, with a match, employees contribute 7.4% per year; without one, they contribute 7.1%.
All Income Levels Save
Data highlights that when given access to a retirement plan, employees—even those with lower salaries—are committed to setting themselves up for a financially secure future:
- People earning a $30,000-$39,999 salary are saving 6.1% of their salary in their company 401k.
- Workers earning $200,000-$209,999 are saving 7.7% of their salary in a 401k.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
