By: Tom Hegna CLU, ChFC, CASL
In my previous post, A Special Note to Women: Part 1, I highlighted Dr. David Babbel’s five significant hurdles that are facing American women and their retirement income. I discussed that while we all face risk with our retirement income, overall, women are subject to more financial risks than men, especially in their later years. Now that we are aware of what the significant hurdles are, how do we approach them?
In his report, Babbel writes that there are three basic ways to invest retirement money:
- Approach #1: Annuitize a substantial portion of their accumulated wealth.
- Approach #2: Invest primarily in fixed income instruments such as CDs, bonds, money market funds, etc.
- Approach #3: Invest primarily in stocks, bonds, and mutual funds.”
A study in the Journal of Personal Finance entitled, “The Effect of Gender and Marital Status on Financial Risk Tolerance,” by Dr. Rui Yao and Dr. Sherman D. Hanna discusses risk tolerance between men and women:
- Men will be less likely than women to annuitize their wealth at retirement, other things equal.
- Men are more likely than women to place their funds in risky investments.
- Women are more likely than men to invest in risk-free securities, such as bank CDs and US Treasury securities, suggesting that women are less risk tolerant than men. (Embrey and Fox, 1997)
- Single women have a lower propensity to invest in stocks and a higher propensity to invest in bonds than married females, married males, and single males.
- Men are more likely to allocate their assets to “mostly stocks,” which indicates an appetite for more financial risk. 
Although the key findings explain that women are playing it safe by investing in securities like CDs, bonds, money market funds, etc. this is not the optimal way to invest all your retirement money.
We are all well aware of today’s low, or as I call it the “new,” interest rate environment. Since these products do not offer any retirement alpha (i.e. longevity credits, otherwise known as mortality credits) a topic that I highlighted via this blog a few months ago: Increased Life Expectancy Leads to a Decrease in Payout Rates, it will take a much larger portion of your funds to generate the same amount of income.
Annuitizing a significant portion of one’s retirement income can complement a portfolio of stocks and bonds. Fixed Indexed Annuities are an ideal product that can fit here. They can provide a low risk solution, generates guaranteed income for life, and offers protection from market risk. Investing the remainder of retirement savings into a well-diversified portfolio can help provide inflation protection. And by doing this, women can be better protected from the volatility of the market, which could potentially wipe out their entire retirement savings.
For more information on how women can secure more guaranteed lifetime income and achieve retirement success, check out my additional chapter titled, “A Special Note to Women,” in my book, Don’t Worry, Retire Happy! Seven Steps to Retirement Security at: http://tomhegna.com/
 David F. Babbel, “Lifetime Income for Women: A Financial Economist’s Perspective,” Wharton Financial Institutions Center Policy Brief: Personal Finance, July 31, 2008, http://fic.wharton.upenn.edu/fic/Policy%20page/RetirementIncome-Women.pdf
 Yao, R. and S. D. Hanna (2005). “The effect of gender and marital status on financial risk tolerance.” Journal of Personal Finance, Vol. 4:1, 66-85.