3 Retirement Mistakes Women Make, and How to Fix Them

A longer life expectancy and lower pay make retirement saving especially difficult for women.

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Baby boomer women are more likely to have a more financially secure retirement than their predecessors. A new study found that men and women at large companies are both on track to produce the same share of their working income—85 percent of pay—in retirement.

At first that sounds like good news. But women are fraught with the double whammy of lower salaries and a longer life expectancy. So, a woman will need to save 2 percent of pay more per year than the average man over 30 years to achieve the same standard of living, according to Hewitt Associates' calculations.

Here are three retirement mistakes women make and how to fix them.

Not contributing enough to a 401(k) to get the full match. The Hewitt study of 2 million employees at 72 large U.S. companies found that women generally contributed less to their 401(k) plan (7.3 percent of pay, versus 8.1 percent for men). While that's a pretty good savings rate, 30 percent of the women in the study did not contribute at all, and 24 percent didn't contribute enough to get their employer's full match. The typical match was 50 cents for every dollar up to 6 percent of pay.

Even if you don't feel you can spare 6 percent of your salary, small increments can add up. Increasing your annual 401(k) contribution from 2 percent to 4 percent—an increase of $95 per month for a woman making the average salary of $57,000—will net you an extra $81,000 at retirement age, plus an additional $40,500 from the company match, Hewitt calculated.

Investing too conservatively. The average 401(k) plan balance for women in the Hewitt study was $56,320—nearly $47,000 less than men. This is partly because women often make less money—the average woman in the study earned $57,000 annually, compared with $84,000 for the average man—and to lower savings rates. But the women also invested less aggressively than men, which can hurt returns. The Hewitt study found that women are less likely to make riskier equity investments (65 percent for women, compared with 71 percent for men) and are about half as likely as men to make a trade (13 percent versus 24 percent). Of course, risky investments don't guarantee higher returns. So it's important for women to determine their level of risk tolerance in investments with a financial adviser. Hewitt found that 43 percent of the companies surveyed offered online investment advisory services in 2007, and 47 percent planned to in 2008.

Not working longer to compensate for a longer life expectancy. Most of the employees Hewitt surveyed expect to retire by age 65. But women are expected to need to finance 22 years of retirement after age 65, compared with 19 years for men. If a woman worked 2 years longer, until age 67, and continued contributing to her 401(k) plan, she could increase the amount of preretirement income that she replaces in retirement by 13.5 percent, Hewitt calculated. Some companies are even trying to entice older workers to stay on the job longer.

Here are six things both men and women need for a financially secure retirement.