The Compelling Case for Women and Auto Portability

Auto portability will deliver broad-based benefits to America’s workforce, but research has shown that the new feature disproportionately benefits under-saved and underserved demographic segments, including minorities, women, lower-income and younger workers.

Within those demographic segments, a very compelling case can be made for the importance of auto portability to women, who face unique retirement savings challenges that auto portability can help address.

Retirement Headwinds Facing Women
The authoritative Women's Institute for a Secure Retirement (WISER) identifies the top five retirement challenges for women as:

1. Women live longer than men
2. Women earn less than men during working years
3. Women receive significantly lower retirement benefits than men
4. Women have fewer years of earned income
5. Women are more likely to work part-time jobs

Accepting this reality, it’s abundantly clear that every retirement balance saved by women can and should be preserved for retirement, where it could make all the difference in their ability to enjoy a timely and comfortable retirement.

Women’s Cashout Leakage, By-the-Numbers
By incorporating broad-based industry research on cashout leakage, women’s representation in defined contribution plans, participant turnover rates, the Retirement Clearinghouse (RCH) Auto Portability Simulation, data from the EBRI/ICI 401(k) database and the EBRI Retirement Security Projection Model®, we can construct a model of women participants’ post-separation job-changing and cashout behaviors.

• Based on Bank of America research, women collectively represent about 47% of all defined contribution plan participants.
• Each year, an estimated 7.7 million women participants will change jobs.
• Of these 7.7 million women job-changers, approximately 3.1 million, or 41% will cash out their retirement savings account completely, paying taxes and penalties.
• 2.9 million, or 38% will have balances less than $7,000. Of these, 2.1 million – a whopping 72% -- will cash out $5.3 billion in savings.
• Over a generation, 116 million women will cash out almost $290 billion in retirement savings, in today’s dollars.
  
  

While these are grim realities for women, an Aon Hewitt study suggested that women – at higher balance levels – are more likely to preserve their retirement savings from job-to-job. Thus, it becomes vital to preserve small balances so that attainment of larger balances can act as an effective deterrent to cashouts.

Auto Portability’s Compelling Case for Women
In preserving and incubating women’s small 401(k) balances, auto portability delivers.

Examining the results of the Auto Portability Simulation, its figures show that, on an annual basis, auto portability would preserve the savings of 2 million women participants. Over a generation, 111 million women would preserve their retirement savings, worth about $753 billion in today’s dollars.

While the systemic results of auto portability for women are impressive, its effect at an individual level is equally impactful. The analysis below depicts the individual impact of a woman preserving 1-3 $7,000 balances over the course of her career. Preserving just one $7,000 balance at age 25 can result in $86,912 in incremental retirement savings, whereas three $7,000 balances preserved over the course of a career could result in an additional $157,878 in retirement savings.

Figure 1 – Value of a Woman Preserving $7,000

To download an infographic illustrating the benefits of auto portability for women, visit this link.

Achieving Retirement Security for Women
With women’s retirement security on the line, it’s clear that by reducing cashouts, consolidating balances and achieving higher balance levels, women can benefit disproportionately from the widespread adoption of auto portability.