Saving and Investing: A Challenge for Women

Policy Backgrounders | Retirement | Work & Wages

No. 161
Thursday, April 15, 2004
by Celeste Colgan and John Goodman


  1. B. Douglas Bernheim, Jonathan Skinner and Steven Weinberg, "What Accounts for the Variation in Retirement Wealth Among U.S. Households?" National Bureau of Economic Research, Working Paper No. W6227, October 1997.
  2. Data for 2001. See Patrick J. Purcell, "Retirement Savings and Household Wealth: A Summary of Recent Data," Congressional Research Service, December 2003.
  3. Ibid.
  4. See Vickie Bajtelsmit, Alexandra Bernasek, and Nancy Jianakoplos, "Gender Differences in Defined Contribution Pension Decisions," Financial Services Review, Vol. 8 (1999), p. 5.
  5. Vickie Bajtelsmit, "Women as Retirees," Women's Agenda: Ideas to Reform Institutions, National Center for Policy Analysis, March 2002, pp. 75-98.
  6. C. Eugene Steuerle, "Divorce and Social Security," National Center for Policy Analysis, NCPA Brief Analysis No. 291, May 21, 1999.
  7. Internal Revenue Service, publication 590, "Individual Retirement Arrangements." The contribution limit is $3,500 for people age 50 and over.
  8. Bruce Bartlett, "The Case for Expanded IRAs," National Center for Policy Analysis, NCPA Brief Analysis No. 139, 1994; Alan Reynolds, "Should IRAs be Expanded?" NCPA Brief Analysis No. 340, September 2000. These and other studies show that decreased government revenues would be made up with expanded investments in the domestic economy.
  9. Steven F. Venti and David A. Wise, "Aging and Housing Equity: Another Look," NBER Working Paper No. 8608, November 2001. Retirees rarely cash out of their home equity to finance retirement; instead, most use the asset as a reserve for catastrophic circumstances.
  10. For a fuller discussion of Social Security and women, see Matt Moore, Anna Frederick and Adrienne Aldredge, "Social Security, Women and Working Families," Brief Analysis No. 466, February 19, 2004, National Center for Policy Analysis.
  11. Survey conducted by the Luntz Research Companies/Mark A. Siegel and Associates for Third Millennium, September 1994. .
  12. is a Web site sponsored by NCPA. Here you may calculate your own Social Security benefit based on your age and earnings.
  13. See the discussion of this and other examples in Edward J. Harpham, "Private Pensions in Crisis: The Case for Radical Reform," National Center for Policy Analysis, NCPA Policy Report No. 115, January 1984.
  14. The law was the Employee Retirement Income Security Act (ERISA) of 1974.
  15. The existence of federal pension insurance does not guarantee all pension promises will be kept, because the PBGC sets a maximum amount it will pay to each retiree. For example, after Braniff filed for bankruptcy in 1982, retired teamsters receiving monthly pension checks of $665 saw their benefits reduced to $434. Retired machinists saw their monthly pension checks cut from $700 to $590. Harding Lawrence, former CEO of Braniff, was counting on a $306,000-a-year pension. Under the bail-out, his pension was reduced to $16,568 a year. See Harpham, "Private Pensions in Crisis," p. 7.
  16. However, at the time ERISA was passed it is doubtful that Congress anticipated the explosive growth of 401(k) plans. This is why Department of Labor analyst Richard Hinz calls the 401(k) the "accidental pension." See "A Matter of Definition," The Economist, February 16, 2002, p. 3.
  17. The counterpart of the 401(k) for nonprofit organizations, including colleges and universities, is the 403(b) plan. Employers may also establish a Savings Incentive Match Plan for Employees (SIMPLE). Self-employed individuals can take advantage of a Simplified Employee Pension (SEP) plan, or a Keogh Profit Sharing plan. According to some analysts, the new tax law also allows the self-employed to set up a "one-person 401(k) plan." See Karen Damato, "The One-Man Band Gets a 401(k) Gift: A Lucky Benefit For the Self-Employed," Wall Street Journal, August 17, 2001.
  18. Withdrawals without penalty may be made at age 59 1/2. Other than "hardship" withdrawals approved by an employer, withdrawals before age 59 1/2 are subject to a 15 percent penalty on top of normal income taxes.
  19. Unless the employee is over 50; then she may take advantage of a "catch-up" provision that allows her to shelter $14,000 for 2003.
  20. More than 48 million workers have accumulated more than $1.8 trillion in defined-contribution plans. See Abstract of 1997 Form 5500 Annual Reports, U.S. Department of Labor, Pension and Welfare Benefits Administration, "Private Pension Plan Bulletin," No. 10 (Winter 2001).
  21. "A Matter of Definition."
  22. Bajtelsmit, "Women as Retirees."
  23. Plans must have vesting standards no more stringent than one of two schedules: 100 percent vesting after 5 years of participation (with no vesting prior to that time), or vesting of 20 percent after 3 years of service and an additional 20 percent after each subsequent year of service until 100 percent vesting at the end of 7 years of service. See Employee Benefit Research Institute, Fundamentals of Employee Benefit Programs, 5th ed. (Washington, D.C.: EBRI, 1997), pp. 42-43.
  24. K. Ferguson and K. Blackwell, The Pension Book: What You Need to Know to Prepare for Retirement (New York, N.Y.: Arcade Publishing, 1995), pp. 37-47.
  25. Employer plus employee total annual contributions to a SEP-IRA (Simplified Employee Pension Plan) is limited to $40,000 per year, or 25 percent of the employee's compensation, whichever is less. The Economic Growth and Tax Relief Reconciliation Act of 2001 raised the previous $30,000 limit to $40,000 in 2002.
  26. Employee contributions to 401(k)s, 403(b) and other tax deferred accounts were limited to $12,000 in 2003. The Economic Growth and Tax Relief Reconciliation Act of 2001 incrementally raises the maximum annual individual contribution by $1,000 per year to $15,000 by 2007.
  27. In 2003, individuals who do not participate in an employer-sponsored plan could contribute $3,000 ($3,500 if age 50 and older) to an IRA. The Economic Growth and Tax Relief Reconciliation Act of 2001 incrementally raises the maximum contribution to $5,000 by 2008. While this limit will increase under current law, it is still only about a quarter of the contribution allowed to an employer-sponsored plan.
  28. Bajtelsmit and Bernasek, "Why Do Women Invest Differently Than Men?" Financial Counseling and Planning, Vol. 7, 1996, pp. 1-10.
  29. Bajtelsmit, "Women as Retirees."
  30. "Investment Relations: Defined-Benefits vs. 401(k)," Watson Wyatt Insider, September 1998.
  31. Brooks Hamilton and Scott Burns, "Reinventing Retirement Income," National Center for Policy Analysis, NCPA Policy Report No. 248, December 2001.
  32. Ibid.
  33. Brooks Hamilton, "Learning Our Lesson from Enron," Washington Times, February 2, 2002.
  34. Hamilton and Burns, "Reinventing Retirement Income," p. 12.
  35. For example, Vickie L. Bajtelsmit, "Conservative Pension Investing: How Much Difference Does It Make?" Benefits Quarterly, Vol. 12, No. 2, 1996, pp. 35-39.
  36. See the review of the literature in Vickie L. Bajtelsmit and Alexandra Bernasek, "Why Do Women Invest Differently Than Men?" Financial Counseling and Planning, Vol. 7, 1996, pp. 1-10; and in Bajtelsmit, "Women as Retirees."
  37. Brad Barber and Terrance Odean, "Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors," Journal of Finance, Vol. LV, No. 2, April 2000, pp. 773-806.
  38. Hal R. Varian, "Economic Scene: Investor Behavior Clouds the Wisdom of Offering Wider Choice in 401(k)s," New York Times, February 14, 2002.
  39. Hamilton and Burns, "Reinventing Retirement Income," p. 13.
  40. Only about a third of large, multisite corporations who are members of the Profit Sharing Council of America give investment counseling to employees, usually through online resources. Half of all members provide such advice, up from 35.2 percent in 2000. Source: David Wray, President, Profit Sharing Council of America.
  41. See for example, Scott Burns "Go Index Funds for the Long Term," Dallas Morning News, February 12, 2002.
  42. See the discussion in Hamilton and Burns, "Reinventing Retirement Income," pp. 17-19. Hamilton and Burns also discourage preretirement, lump sum distributions. A 1988 Current Population Survey found that women were 40 percent more likely than men to receive such a payment. Only half of each group rolled the payment over into another savings or retirement plan. See also Bajtelsmit and Berask, "Why Do Women Invest Differently Than Men?" p. 5.
  43. Jagadeesh Gokhale and Laurence J. Kotlikoff, "Tax-Favored Savings Accounts: Who Gains? Who Loses?" National Center for Policy Analysis, NCPA Policy Report No. 249, January 2002.
  44. For the explanation of the Social Security benefits tax and how it affects marginal tax rates, see Stephen J. Entin, "Reducing the Social Security Benefits Tax," National Center for Policy Analysis, NCPA Brief Analysis No. 332, August 2000.
  45. Gokhale and Kotlikoff, "Tax-Favored Savings Accounts."

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