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Women Face Cashout Challenge

A new study highlights the challenges faced by women in preserving their 401(k) savings when changing jobs.

Retirement Clearinghouse (RCH) Executive Vice President Tom Johnson revealed findings at a May 22 Women’s Institute for a Secure Retirement (WISER) roundtable showing that women with small 401(k) balances – particularly for those with balances less than $5,000 – cash out at a much more frequent basis than men.

According to the data, each year an estimated 5.9 million women participants will change jobs, of whom about 2.4 million, or 41%, will cash out a total of $28 billion in retirement savings, plus taxes and penalties.

On a positive note, the findings also show that as women’s 401(k) balances grow, they are more likely than men to preserve their retirement savings.

RCH’s research also shows that 2.1 million women, or 36% of the 5.9 million, will have balances less than $5,000. Of this group, 1.5 million, or 71% will cash out $2.6 billion in savings. When projected over a generation, RCH finds that 104 million women will cash out nearly $800 billion in retirement savings in today’s dollars.

The results are comprised of industry research on cashouts, women’s representation in DC plans, participant turnover rates, RCH’s Auto Portability Simulation, the EBRI/ICI 401(k) database and the EBRI Retirement Security Projection Model to provide a model of women participants’ post-separation job-changing and cashout behaviors.

Drawing from a 2015 survey by Boston Research Technologies, the RCH data also shows that women Baby Boomers had a 93% higher odds of cashing out a $500 balance versus men, and Millennial and Gen X women were found to have 38% and 30% higher odds, respectively. Similar findings are shown for balances of $2,500, where Millennial (28%) and Gen X (19%) women were found to have higher odds compared to men.

The Portability Solution

A blog post by Thomas Hawkins, vice president of sales and marketing with RCH, explains that these behaviors suggests that a program of retirement savings portability could help preserve women’s small 401(k) balances, allowing them to more effectively grow their savings to higher balance levels.

Incorporating the results of the Auto Portability Simulation, RCH’s figures show that on an annual basis, auto portability would preserve the savings of 1 million women participants. Over a generation, 42 million women would preserve their retirement savings, worth about $365 billion in today’s dollars, Hawkins notes.

The RCH analysis also shows the individual impact of preserving $5,000 balances over the course of a career. For example, the figures show that preserving just one $5,000 balance at age 25 could result in $70,000 in retirement savings, while three $5,000 balances preserved over the course of a career could result in an additional $123,600 in retirement savings.

Women’s Confidence Gap

Separately, a recent whitepaper by Midland National Life Insurance Company found that despite the fact that more than half of American women participate in the workforce, they are less confident than men in their knowledge of savings strategies for retirement.

Empowered: New Research about Women’s Retirement Approaches” examined women’s approaches to selecting a financial professional, communication about finances, perceptions of retirement and what they value in their relationship with a financial professional.

One important distinction, according to the study, is that women value recommendations and advice on retirement resources from people they know, whether it is family members, their friends, or their employer. In contrast, men are more likely to turn to online research.

Comparing the men and women in the survey, Midland National found that:

  • Women consumers feel less knowledgeable about the retirement process. The study notes that 90% of all women will be solely responsible for their household’s financial well-being at some point in their life, yet they are not confident in planning. Overall, women rate their knowledge significantly lower than males — 3.30 versus 3.58 on a 6-point scale.

  • Women seek retirement advice from others. While both groups commonly turn to their employer or financial advisor for advice, women tend to seek advice from others such as their partner (28% women vs. 17% men), employer (56% vs. 44%), or friends and family (34% vs. 26%). Men rate high on previous experiences (31% vs. 18%) and online resources (40% vs. 30%).

  • Women are most concerned about saving for mortgage/rent expenses and emergencies. On a 10-point scale, both males and females are equally concerned about saving for health care expenses and peace of mind. Women, however, are more concerned about saving for mortgage/rent expenses (7.65 vs. 6.49) and emergencies (8.49 vs. 8.06) than men.

  • Women place value on advisor expertise and communication. On a 10-point scale, women placed more importance on factors related to expertise (9.1 vs. 8.7) and communication (8.3 vs. 7.7) than their male counterparts. Females also apparently have more concerns about outliving their money and need more reassurance for “what-if” scenarios.

Midland National’s consumer study was conducted Nov. 6-19, 2017, and included 400 women and 200 men, age 40 and above. A separate agent study was conducted Nov. 17 to Dec. 12, 2017, among 257 Midland National agents, including both men and women.