Remarks by
Brigitte Madrian; Aetna Professor of Public Policy and Corporate Management, Harvard Kennedy School. 

Prepared for the Hearing "Women’s Retirement Security", Joint Congressional Economic Committee, Wednesday, May 21, 2014. Vice Chair Amy Klobuchar presiding.

Brigitte Madrian testifying in front of the Senate Health, Education, Labor and Pensions  Committee on January 31st, 2013 on retirement Savings. C-Span

Thank you for the opportunity to speak to you today and share my thoughts on how we can strengthen America's retirement savings system.  By way of background, I am the Aetna Professor of Public Policy and Corporate Management at the Harvard University John F. Kennedy School of Government. I have spent the past 15 years studying employer sponsored savings plans and the types of policy interventions and plan design features that can improve savings outcomes. There is much concern in both academic and policy circles about whether our current private defined contribution retirement savings system can adequately meet the retirement income needs of individuals.

My early research on automatic enrollment documented how small changes in plan design can have a large impact on savings outcomes. This research provided the impetus for the measures incorporated in the Pension Protection Act of 2006 that encourage employers to adopt automatic enrollment as part of their employer sponsored savings plans. There are many other measures that can further strengthen the private defined contribution savings system in the US for both men and women. In examining the retirement security of women in the US, there is both good news and bad news. Saving for retirement and then management one's asset in retirement is one of the largest, if not the largest, financial task that any household will undertake. Yet recent evidence on the financial capabilities of the US population who that we are a nation are woefully unprepared for this task, and that women fare worse than men.

Women have significantly lower scores than men on a simple 5-­question test designed to test knowledge of basic financial concepts such as inflation, compound interest, and the value of diversification. This is true for both married and single women. Interestingly, women are not much more likely to give incorrect answers than men; instead, they are much more likely to answer "I don't know."

Women are also substantially more likely than men to report that it would be difficult for them to come up with $2000 to meet an unexpected expense within the next 30 days (44% for women vs. 34% for men). Women are also more likely than men to report difficulty paying bills than men (47% for women vs. 57% for men).

But as women approach retirement, some of this gap narrows. There is some evidence to suggest that married women become more financially literate as they age in response to the likelihood that they will outlive their husbands and need to take over sole management of the household finances.

Planning for retirement is not an activity engaged in by the majority of either women or men; on the retirement planning front, there are no substantive differences by gender, with 43% of both men and women having planned for retirement, although a slightly higher fraction of men than women actually report having some retirement savings (63% for men vs. 58% for women).

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