Traditional investment plans leave women more vulnerable in retirement

Women are more likely than men to run out of their retirement savings when relying on a traditional 60/40 investment mix of stocks and bonds. 

The finding from a new Monash University study shows that women, who on average retire with lower superannuation balances than men, face a heavier financial strain in retirement with a traditional investment approach. 

The report, titled The Future of the 60/40 Allocation: Modelling the Performance of the 60/40 Portfolio in Retirement, examined retirement outcomes in both Australia and the US. 

It looked at how well the traditional 60/40 investment mix could support people over their retirement, either at a ‘comfortable’ lifestyle of $53, 289 per year or a ‘modest’ lifestyle of $34, 522 per year for single retirees. These figures come from standard benchmarks used in Australia. 

The 60/40 strategy allocates 60 per cent of a person’s retirement savings to equities for growth and 40 per cent to bonds for stability and is a widely used strategy.

Lead author Dr Bei Cui explains that women tend to have fewer external income streams and are more likely to use up their superannuation earlier in retirement, especially when aiming for a comfortable retirement lifestyle. 

“The 60/40 strategy only works well when several conditions align, such as higher savings balances at the start of retirement, modest lifestyle expectations and positive early returns,” Dr Cui said. 

“Many believe the 60/40 portfolio provides a safe balance, but in practice it does not deliver the same security for everyone, particularly for women who begin retirement at a disadvantage.”

Associate Professor Ummul Ruthbah, MCFS Deputy Director and co-author of the research, said retirement outcomes depend on factors like when you retire, your starting balance and spending needs. 

“Portfolios for both men and women are hit hard if investment returns are poor in the first years of retirement, but since women’s balances are typically smaller, their portfolios are likely to deplete faster,” Associate Professor Ruthbah said.

People should consider gender disparities in retirement outcomes when considering financial planning strategies, looking at options that address differences in income, life expectancy and savings accumulation, the report notes. 

Women’s financial security in retirement requires special attention, co-author of the study, Associate Professor Nga Pham said. 

“Our study showed that female retirees are more vulnerable because they often start with lower balances and lower ongoing benefits. This puts greater pressure on their portfolios and increases the risk of running out of money,” Associate Professor Pham said.

The report from Monash University calls for individual tailoring of retirement planning, noting that a single investment formula such as the 60/40 approach, would not be enough. 

Strategic withdrawals adjusted for market conditions and more financial literacy would help women understand their retirement plans and the risks associated.