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  • Understanding and Solving the Problem of Women’s 401(k) Cashout Leakage

    August 1st, 2018

    A cracked egg with money flying out the window.

    Guest author: Tom Hawkins, vice president of sales and marketing with Retirement Clearinghouse

    At a recent Women’s Institute for a Secure Retirement (WISER) roundtable addressing strategies, choices and decisions for women’s retirement income, important new data was presented that highlights the challenges faced by women in preserving their 401(k) savings when changing jobs – particularly for women with balances less than $5,000.

    Compiled by Retirement Clearinghouse (RCH) and presented to the WISER roundtable by RCH EVP Tom Johnson, the data indicates that women with small 401(k) balances cash out much more frequently than their male counterparts.  However, as women’s 401(k) balances grow, they become more likely than men to preserve their retirement savings.

    These behaviors, along with the results of the Auto Portability Simulation, suggest that a program of retirement savings portability could incubate women’s small 401(k) balances, allowing them to more effectively grow their savings to higher balance levels, where more virtuous behaviors prevail.

    An infographic summarizing the statistics is available for download at this link.

     

    Women’s Cashout Leakage By-the-Numbers

    Using a multi-disciplinary approach that incorporated industry research on cashout leakage, women’s representation in defined contribution plans, participant turnover rates, the Auto Portability Simulation, the EBRI/ICI 401(k) database and the EBRI Retirement Security Projection Model®, the results provide a model of women participants’ post-separation job-changing and cashout behaviors.

    • Based on Vanguard research, women collectively represent about 40% of all defined contribution plan participants.
    • Each year, an estimated 5.9 million women participants will change jobs.
    • Of these 5.9 million women job-changers, approximately 2.4 million, or 41% will cash out $28 billion in retirement savings, paying taxes and penalties.
    • 2.1 million, or 36% will have balances less than $5,000. Of these, 1.5 million – a whopping 71% — will cash out $2.6 billion in savings.
    • Over a generation, 104 million women will cash out almost $800 billion in retirement savings, in today’s dollars.

    Drawing upon a 2015 survey by Boston Research Technologies, the RCH data also revealed that, at sub-$5,000 levels, women of all ages tended to cash out at much higher-levels than their male counterparts, as indicated in the graph below.

     Womens Cashouts Small Balances Chart

    Chart 1 – Women’s Odds of Cashing Out Small Balances
    Source: Actionable Insights for America’s Mobile Work Force, Boston Research Technologies (2015)

     

    The Promise of Portability

    A more promising data point was revealed in a 2011 study by Aon Hewitt, indicating that women – at higher balance levels – were more likely than their male counterparts to preserve their retirement savings from job-to-job.  This finding seems to mirror other research (ex. – The $10,000 Hurdle, Northern Trust, 2017) suggesting that efforts to move participants’ balances to higher thresholds can act as an effective deterrent to cash outs.

    In preserving and incubating women’s small 401(k) balances, auto portability delivers.

    Incorporating the results of the Auto Portability Simulation, the RCH 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.

    While the systemic results of auto portability are impressive, its effect at an individual level is equally impactful.

    The RCH analysis depicts the individual impact of preserving 1-3 $5,000 balances over the course of a career.  As the figure shows below, preserving just one $5,000 balance at age 25 can result in $70,000 in retirement savings, whereas three $5,000 balances preserved over the course of a career could result in an additional $123,600 in retirement savings.

    Preserving Small Balances

    Figure 1 – Value of Preserving $5,000
    Source: Retirement Clearinghouse

    Taken together, the new data presented at the WISER roundtable demonstrate that by reducing cashouts, consolidating balances and achieving higher balance levels, women could benefit disproportionately from the widespread adoption of auto portability.

     

    Tom Hawkins is vice president of sales and marketing with Retirement Clearinghouse, and oversees all key operational aspects of this area, including RCH’s web presence, digital marketing and plan sponsor proposals. In other roles for RCH, Hawkins has performed product development, helped lead the company’s re-branding, evaluated and organized industry data and makes significant contributions to RCH thought leadership positions.

    Stay Engaged With Financial Wellness At Every Age

    May 29th, 2018

    women-retirement-facts-FSL-graphic

    Every May, WISER is pleased to partner with organizations across the country for Older American’s Month, led by the Administration on Aging, part of the Administration for Community Living. The 2018 theme, Engage at Every Age, emphasizes that you are never too old (or young) to take part in activities that can enrich your physical, mental, and emotional well-being. It also celebrates the many ways in which older adults make a difference in our communities.

    Here at WISER, we believe wholeheartedly in the message of Older Americans’ Month—that no matter your age, you have unique benefits to offer to society, your loved ones and yourself. Even if you are no longer working, there are ways to stay engaged with the world around you. Doing so keeps you connected to others and keeps you alert—which is a good thing for your finances. The more isolated you are, the more susceptible you can become to financial scammers, who are likely to prey on older Americans.

    A great way to stay engaged with others is by sharing the financial lessons you’ve learned throughout your life. WISER’s website is filled with resources that make doing so easy. For example, WISER has dozens of fact sheets that cover the basics on many topics. They can be a helpful guide for talking to others about money. For example, here’s a list of 5 things mothers should tell daughters about money and retirement. Other resources are aimed at younger people, like “The Beginner’s Guide to Saving and Investing.” It can provide a framework for an initial conversation talking to the teenagers and young adults in your life about the importance of long-term planning. If you know a young person planning for college, talk them through“Student Loans 101” to make sure they know exactly what to expect if they plan to take out loans.

    For those who aren’t quite ready for more advanced money topics, WISER created a storybook called Sonja Meets Her Future Self.  The book is available for free download or can be ordered directly from WISER.  In the story, a young girl named Sonja travels forward in time and meets future versions of herself. Along the way she learns about the importance of saving and what it means to be retired. This booklet provides a multi-generational look at retirement planning and the valuable lesson of save, spend and give.

    In addition to teaching others about financial lessons, another great way to stay engaged is through volunteer work. Doing so can keep you busy during retirement and is often an activity that is free of cost. Websites like volunteermatch are a great starting point. Your local library is another great resource to find community groups that will keep you engaged.

    WISER believes that financial security is tied to better physical, mental and emotional well-being. Stay engaged during Older Americans Month (and year-round) with our resources.

    National Social Security Month Shines a Light on Online Services

    April 19th, 2018

    WISER is pleased to share this message from the Social Security Administration in celebration of National Social Security Month.

    In April, we celebrate National Social Security Month, and highlight our agency’s mission and purpose. We’re with you throughout life’s journey — from birth, to marriage, and into retirement — and we’re always searching for ways to give you easy and secure access to everything we offer.

    We are constantly expanding our online services to give you freedom and control in how you wish to conduct business with us. Our online services help you plan for the future and keep you in control of your benefits. You can go online to:

    1. Find out if you qualify for benefits;

    2. Use our benefit planners to help you better understand your Social Security protection;

    3. Estimate your future retirement benefits to help you plan for your financial future;

    4. Retire online, or apply for Medicare quickly and easily

    Open your personal my Social Security. Your personal account is the most powerful tool to help you stay in control of your Social Security record. If you don’t receive benefits yet, you can:

    -Get your Social Security Statementto review your earnings, make sure they’re recorded correctly;

    -Get a benefit verification letter to prove you don’t receive Social Security benefits or that you applied but haven’t received an answer yet;

    -Request a replacement Social Security card if you meet certain requirements; and

    -Check the status of your application or appeal a decision.

    If you receive benefits, you can:

    -Change your address and phone number;

    -Get a benefit verification letterto prove you receive Social Security benefits, Supplemental Security Income (SSI), or Medicare;

    -Start deposits or change your direct deposit information at any time;

    -Get a replacement Medicare card; and

    -Get a replacement Benefit Statement (SSA-1099 or SSA-1042S)for tax purposes.

    Do you own a business? You can also use our Business Services Onlinesuite to report employee wages and verify names and Social Security numbers for W-2s.

    Join us and celebrate National Social Security Month by seeing everything you can do online!

    WISER

    About Us

    WISER is a nonprofit organization that works to help women, educators and policymakers understand the important issues surrounding women's retirement income. WISER creates a variety of consumer publications including fact sheets, booklets and a quarterly newsletter that explain in easy-to-understand language the complex issues surrounding Social Security, divorce, pay equity, pensions, savings and investments, banking, home-ownership, long-term care and disability insurance.

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