Cecily O'Connor
RedwoodAge.com

The gap between how much we need for retirement and the amount we're saving has widened - particularly for women.

Women are especially vulnerable in retirement because they tend to earn less, invest conservatively, live longer and face higher medical costs, according to a study by Hewitt Associates, an HR consulting firm.

To maintain their living standard, women need about 130 percent of their final pay check after they retire with the extra covering new costs like health benefits that used to be paid by employers. Men need about 123 percent.

The study, which examined the projected retirement levels of nearly 2 million employees at 72 large US companies, found that both men and women are only poised to replace 85 percent of pay at retirement, assuming average life expectancy.

Hewitt estimated average final pay rates of $52.000 for women and $84,000 for men. But because of her higher costs after retirement, the average woman will need to save 2 percent more of her pay each year during a 30-year career just to maintain her already lower standard of living.

“There are multiple barriers women face that automatically put them at a disadvantage when it comes to meeting adequate retirement income levels - some of which are preventable and some of which are not,” said Alison Borland, defined contribution consulting practice leader at Hewitt. 

Fall Into the Gap
Both financial and socioeconomic factors contribute to the gap in retirement income replacement rates. Given the lower base pay at which women start retirement, medical costs will likely consume a higher percentage of their retirement assets. That's troubling because women are expected to live almost three years longer than men, or an average of 22 years past the 65-year-old retirement threshold. 

Conservative investing behavior also limits women, most of whom have less money saved in their 401(k) plans than men, according to Hewitt. The average plan balance for women is $56,320, which is nearly $47,000 less than men. In addition, women tend to contribute less to their 401(k), and they are less likely to take advantage of the employer match. 

Another way in which women miss out on retirement savings opportunities is taking time off for family, which can result in hundreds of thousands of dollars in missed earnings, promotions, raises and benefits. 

“But despite these challenges, it is possible for women to make a significant impact on the amount they amass in their retirement nest eggs if they are willing to understand the challenges they face and take a few small steps toward improving their saving and investing behaviors," Borland said. 

Invest Early
One step is to invest earlier and more vigorously. For example, women could potentially increase their nest egg by 18 percent by investing two years earlier than they do now, or 23 percent by investing just four years earlier, Hewitt found.

Another option is to put off retirement for a few years. Most employees estimate they will retire by age 65, but working two years longer can ratchet retirement replacement income up by 13.5 percent for women who contribute to their 401(k) plans. With more money in retirement, retiree medical costs - typically a flat dollar amount on an annual basis - aren't likely to eat up as much savings.

To ensure 401(k) money grows over time, it's important not to touch it, too. About 45 percent of employees cash out their 401(k) plans when they leave a job, and in doing so, forfeit 20 percent or more of their account's value in federal taxes and another 10 percent in early withdrawal penalties, according to Hewitt. That's why it's important for women to keep their money in their companies' 401(k) plans when switching jobs or exiting the workforce to start a family.