Vanguard Examines 401(k) Behavior/Outcome Gender Paradox

Vanguard examined gender differences in participants of defined contribution (DC) plans, finding that women exhibit better savings behaviors but trail men in outcomes. A new white paper reviewed participation, savings rates, and investments to investigate the substantial imbalance in 401(k) wealth accumulation for men and women. Despite the seemingly equalizing influences of autopilot plan design, Vanguard concludes that both gender and income play critical roles in determining savings behaviors and outcomes.

Behaviors: Participation and savings rates

Optimal savings behavior for all participants starts with the decision to save, and Vanguard data demonstrates that women lead men in plan enrollment rates. Female Vanguard participants are 14% more likely to participate than men in their workplace savings plan and, once enrolled, save at higher rates. Factoring in income, which is correlated with participation, Vanguard found that women earning less than $100,000 have participation rates that are about 20% higher than those of their male counterparts. Moreover, across all income levels, women save at rates that are between 7% and 16% higher than men’s savings rates.

Looking strictly at plans with automatic enrollment, men and women participate at the same rate, suggesting that men are benefiting more from the positive guidance of auto features. However, lower-wage individuals typically see the largest improvements from auto enrollment—and about 60% more women fall into the lower-income bands than men.

“Autopilot features are undoubtedly the great equalizer, but we’re not seeing a rapid convergence of men’s and women’s participation and savings rates,” said Jean Young, senior research analyst in the Vanguard Center for Retirement Research. “Women absolutely demonstrate a conscious inclination towards savings and, even with a higher proportion of women earning lower wages, the tailwind of auto enroll has maintained that savings lead.”

A closer look at savings rates underscores the significance of income in combination with gender. Ms. Young, the author of the report, found that the only category in which men outsaved women was among participants in auto enrollment plans; in this group men deferred at rates 5% higher than women. Notably, however, higher-income participants are more likely to override default features. With average wages of Vanguard male participants 25% higher than those of women, and median wages 33% higher, income accounts for the higher contribution rates by men in these plans. Conversely, in voluntary enrollment plans, women save at rates that are 6% higher than men.

Behaviors: Portfolio construction and trading

Additional gender tendencies emerged through an analysis of participants’ portfolio construction and investment decisions, though not necessarily on par with widespread financial stereotypes. Contrary to widely held views that women are more risk averse, their equity exposure is on par with that of their male counterparts. Instead, female participants skew towards less-concentrated risk. Women are less likely to hold employer stock and more likely to hold balanced investment allocations.

Nearly half of Vanguard female participants adopted professionally managed allocations—a managed account program, target date fund, or traditional balanced fund.  Women are also far more likely than men to hold a target-date fund. As of year-end 2014, 42% of women held a single target-date fund and, on average, held 52% of account balances in target date-funds. In aggregate, 17% more women than men held a single target-date fund in their retirement plan account. Vanguard research has also consistently demonstrated that participants using professionally managed allocations have better portfolio outcomes than participants who construct portfolios on their own. Women also traded about one-third less frequently than men, with only 7% of female participants trading in 2014.

Outcomes: Performance and account balance

Importantly, Vanguard research notes similar investment performance for men and women. Over the last five years, male participant returns only slightly edged out those of women. Median returns for men were 10.9%, compared with 10.6% for women. 

The paper underscores the stark reality that while women are more likely to save in DC plans, men still have larger account balances. Male participants have average and median account balances that are more than 50% larger than female participants.

“With persistent and undue criticism of the 401(k) system, it is important to note that the data reflects current labor market realities, and defined contributions plans are not driving this gender retirement savings gap,” said Ms. Young. “More important, however, is the lingering suboptimal savings rates on the part of all participants, regardless of gender.” Vanguard recommends a target savings range of 12 to 15%, including employer contributions.

Investments in target-date funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the work force. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in target date funds is not guaranteed at any time, including on or after the target date.

About Vanguard

Vanguard is one of the world’s largest investment management companies. As of September 30, 2015, Vanguard managed more than $3.2 trillion in global assets. The firm, headquartered in Valley Forge, Pennsylvania, offers more than 300 funds to its more than 20 million investors worldwide. For more information, visit


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