Issue: 46
Sent: 10-07-2006 03:19:33
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Slam Dunk for Women - Lester Wills
Women stand a far higher chance of being poor in retirement than men. Such a statement has the potential to get my head bitten off, but I stand by it.
Allow me to explain.
I started off calling this article double whammy, then triple, then quadruple and then gave up and simply called it slam-dunk as I kept coming up with more reasons to back up my opening statement.
Women tend to spend less time in the workforce than men. What makes this of concern is that women tend to live longer than men. This is what I have euphemistically call, having less time to earn more money that has to last longer.
But wait there's more
The problem is that women tend to earn less than men. This is not just women earning less than male equivalents doing the same job, a significant proportion of the part time work force is made up of women. So, although they may be classified as working, their effective earnings are relatively low.
This alone is enough to ensure that women are more vulnerable than men to poverty in old age. But wait, there's more
Apparently women tend to experience more chronic health problems than men as they age and consequently can encounter higher medical expenses. So, despite having less to start with, they are likely to have higher medical bills!
Unfortunately, there's still more.
Increasingly, people's well being in retirement will depend upon their attitude towards risk and the impact of those attitudes on investment decisions. This already applies to the decumulation phase with individuals determining the asset allocation of allocated pensions.
As Choice of Fund in retirement saving takes hold and more people actually exercise that choice, this will increasingly apply to the accumulation stage as well. Some would argue that this applies to all investors, irrespective of their gender.
Whilst this may well apply equally to men and women, to paraphrase George Orwell, some are more equal than others.
Evidence from around the world has found that women are more risk averse than men. Researchers have found that women invest their pension assets more conservatively than men, allocating a smaller percentage to shares than male counterparts.
The arguments goes that if women are on average less willing to take risks than men, they are also expected to accumulate less wealth on average from similar funds, since lower risk is associated with lower returns on investment.
What about married couples? Studies have found that single women are more risk averse than single men and married couples. But, when looking at couples, care needs to be taken over who makes the investment decisions.
A study in 2001 made provision for this by asking individuals in a relationship to allocate assets in dummy portfolios. This was an exercise carried out in isolation from their partner. The most significant differences by gender were found in attitudes towards risk.
They found that men who had a partner of the opposite sex, who was willing to take at least an average risk for an average return, were likely to take a greater risk in the asset allocation of their accumulation funds than their partner.
Women in the same situation on the other hand, took less risk in their asset allocation than their partner. So, women were more risk averse than men, even when married.
I hate to say it, but there is still more.
One of my financial planning contacts has told me of her experiences and related the fact that there are many women who get divorced or widowed who have no idea about every day finances, let alone the complexities of investment. The husbands have always handled the money, so when they are not there even paying bills becomes a major exercise.
Not only that recent research found that many young women consider that their partner will ultimately look after them financially. The fact that they may not yet have a partner was irrelevant. I seem to recall that the divorce rate is currently up around the 50% level, so this seems a slightly spurious attitude to take.
Consequently, in simple terms, some women, work for less time, have lower average earnings, generate less wealth from investments, live longer, pay higher medical bills and rely on partners who may or may not be with them.
The really sad thing is, that some of these guys who are being relied upon to make the financial decisions, may have little financial common sense anyway!
Whilst accepting that this is an oversimplification, I challenge people to prove that at least some of this does not apply to some women.
Now you see why I thought the double whammy title did not go far enough.
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