Men have socked away 50% more in their 401(k) plans than women, according to Bank of America’s 2023 Financial Life Benefits Impact Report, released today.

The average 401(k) balance among men at the end of 2022 was $89,000, versus $59,000 for women, but the gender savings gap is closing among younger generations, according to the report, which drew on data from the firm’s employee benefits programs for 6 million employees at 25,000 companies nationwide.

“The gender savings gap is an issue we can and must address. It carries personal implications for many, as well as macroeconomic implications for us all,” said Lorna Sabbia, head of Retirement and Personal Wealth Solutions at BofA.

Baby boomer and Generation x men have significantly greater account balances than women in their generations (87% vs. 53%, respectively). However, the gap between millennial men and women has narrowed to 23%, BofA reported.

“For women specifically, we are certainly encouraged to see the gender savings gap is smaller among younger generations, but we want to see that positive momentum continue,” Sabbia said.

Female employees should contribute to their 401(k) plans as much as possible, or at least take advantage of their employer-match program. Work disruptions – often due to the need to care for children, parents or spouses – affect a woman’s potential earnings and savings over her lifetime, so taking advantage of these workplace programs is critical, she added.

Gen X continues to have the highest 401(k) participation rate (65%) across generations, followed by 57% of baby boomers (57%) and millennials (55%).

Both participation and contribution rates dropped as of the end of last year, the bank reported. Participation rates dropped only slightly to 56% from 58% in 2021. Meanwhile, the average contribution rate declined to 6.4% from 6.6% in 2021

At the same time, 26% of participants increased their contribution rate last year, compared to 8% of participants who decreased their savings rate, while the number of participants contributing small amounts (less than $5,000) increased to 66% (from 61% in 2021), the study found.

Only 9% took full advantage of their 401(k) plan by contributing the maximum amount allowed and more men (10%) then women (7%) did so. More Baby Boomers (14%) max out than members of any other generation, followed by Gen X (11%).

How can employers and advisors turn the gender savings gap and America’s under-saving problem around?

Some of the most effective tools are auto-enrollment and auto-increase features, that bump up employee contributions annually, the study found.

“Our rule of thumb is simple – save as much as you can for your retirement,” Sabbia said. “While it would be great to see more than 9% of 401(k) participants contributing the maximum amount allowed to their plan, we are encouraged that more participants increased their contribution rate than decreased their rate (26% vs. 8%) and that most participants are contributing enough to maximize their employer match. To encourage more employees to take advantage of employer match, setting the auto-enrollment default rate to the company match maximum is a great way to get them started,” she added.

When 401(k) plans included an auto-enroll feature, most employees (85%) participated in 2022, compared to just 36% employees who participate without this feature. Plans with auto-enrollment that also have auto-increase rose (57% vs. 55% in 2021). Only 2.2% of employees opt out of auto-enroll, BofA found.

“A common theme we see in our research is that while many women feel confident in managing day-to-day financial tasks, they feel much less confident managing longer-term financial planning tasks, such as investing for the future. But, with the right education and support from employers, we believe confidence will follow. To encourage more engagement, employers should consider adding auto-enrollment and auto-increase to their plan design, and couple that with financial education programs to help build understanding and confidence,” Sabbia said.

Only 16% of accounts use advisory services, with women (13%) lagging men (19%) in their use of advisor and planning services as well.

Financial education resources are top of mind among workers. Employees are eager for education, with top interests including retirement (70%) and budgeting (23%). Participants would prefer to learn by attending a webinar (69%), followed by a short video (36%) and visiting a website for information (31%),” BofA said.

Participants also said they want to engage digitally. 63% of participant visits were online, followed by 22% engaging via mobile apps and 15% through call centers.

Overall account balances declined by 17%, due to stock and bond market declines in 2022 and the average 401(k) account balances fall far short of what a retiree will need. For Baby Boomers, men have an average account balance of $179, 688, while women have $95,939.

Gen-X men have an average account balance of $123,177 compared to women’s average balance of $80473. Millennial men’s balances are $29,218 on average, with women socking away $23,715, the study found.

The highest account allocation (36%) is held in equity mutual funds, with Millennials holding the highest percentage of their account balances in target date funds, while Gen Z (31%), Gen X (24%) and Baby Boomers (19%) hold considerably less in these types of funds.
Some 28% of women vs 22% of men hold target date funds in their 401(k)s, BofA found.