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The financial risks that women run, and their ways of dealing with those risks, are distinct from men. This is due to very real biological, psychological, and cultural distinctions. Compared to men:

  • Women live longer.
  • Women are likely to suffer financial setbacks as a result of divorce, whereas men are more apt to be financially better off after a divorce.
  • Women are far more likely to live by themselves for a significant period of time, either by choice or by circumstance.
  • Women’s workplace participation is more intermittent than men’s, resulting in greater gaps in insurance and benefit coverage and reduced opportunity to save for retirement.
  • Though better educated than we once were, women still gravitate toward traditionally female career choices— teaching or administrative work—because these jobs afford more possibility of part-time hours or accommodation for family demands.
  • Women do most of the caretaking of dependents, both children and the elderly.
  • Women are more risk-averse than men when it comes to investing.
  • Women are generous by nature, but more timid about making significant gifts.

Keeping in mind these differences, let’s compare the financial situation of a 65-year old male retiree to that of a 65-year old female retiree.

Assume our sixty-five-year-old male retiree has managed to put away $1 million in assets to live on during the rest of his life. His portfolio is invested 60 percent in stocks.

Using a method of analysis called Monte Carlo simulation, we can estimate there is an 80 percent probability that he will not run out of money if he keeps his monthly expenses to $4,300. If he lives a bit higher off the hog—at $5,000 a month—the likelihood that he will not run out of money before he runs out of life drops to 60 percent.

For our female retiree, however, the results look quite different. Because she is likely to live at least five years longer than her male counterpart, the amount of money she can live on with a 80 percent likelihood of not running out is only $3800 a month. Alternatively she could live on $4400 a month — just about the same as our male retiree’s lifestyle if he picks the conservative 80% likelihood of not running out of money — but with a lot less security since in this case she has only a 60% likelihood of not outliving her money.

Now suppose our woman retiree has not been able to save as much as our male retiree, perhaps because she was paid less for the same work, or because her workforce participation was interrupted to raise children or to take care of elderly parents. If she has managed to save only 70 percent of what the man has saved, simple math tells us her retirement income will be only $2660 a month with a 80 percent probability of not running out of money, or she could get $3080 a month with a far riskier 60 percent probability.

Now suppose further that, rather than holding 60 percent of her retirement portfolio in stocks as our male has chosen, our female retiree invests only 25 percent in stocks. (Studies have shown that women invest less aggressively than men.) Her monthly income now decreases to a mere $2,520 with a 80 percent probability of not running out, or $2,730 if she selects a 60 percent probability.  Given the general preference of women for security, she would likely settle for the lesser $2520 amount per month.

So living longer and earning less (both factors over which a woman does not have complete control) combined with her general risk aversion, leave our female retiree with just about half the monthly income of her male counterpart.

So what can a woman do to create more retirement security? At Directionss, we believe a multi-prong strategy is often what is needed to improve women’s retirement. Managing spending, understanding the importance of managing her workplace salary and benefits, continuing to work past retirement age if still healthy and able, learning more about community resources and support: all these play a role in making a woman’s retirement years an occasion for enjoying life, as opposed to a time of constant worry. Be sure to talk to your financial advisor about all these approaches, and how they can work for you.