Study: Women should lighten equity load

Due to their longer life expectancies, woman should allocate much less to equities than advisers normally recommend, according to an academic paper. Women should put 40% to 80% of retirement assets into lifetime income annuities, according to “Lifetime Income for Women: A Financial Economist’s Perspective,” a paper by David F. Babbel, professor of insurance and finance at the Wharton School of the University of Pennsylvania in Philadelphia. The paper highlighted three popular retirement approaches: annuitization of one’s wealth; investment in primarily fixed income instruments; and investment primarily in stocks, bonds and mutual funds. The third approach, though appealing due to its liquidity and return potential, is particularly dangerous for women because uncertain returns in the long term, plus longer investment horizons, means allocations to stocks should be lower than normally expected, Mr. Babbel noted. Enter the lifetime income annuity. Since women tend to live longer than men, their monthly income is lower than of their male counterparts. A healthy male at age 65 stands a 50% chance of living beyond 85, compared to a female of the same age, who has the same chance of living beyond 88. Due to their longer lives, women receive an additional 42 extra monthly payments. When calculated for timing of payments and interest earned, these annuities are cheaper for women, compared with what men pay for equivalent annuities, Mr. Babbel observed. Some women have been reluctant to purchase income annuities because of their perceived inflexibility. However, some carriers have remedied this with allotted withdrawals for emergencies, limited protection against insurer insolvency, death benefits and a refund of the investment to heirs if the policyholder dies shortly after purchase, Mr. Babbel wrote. New York Life Insurance Co. funded some of the author’s research.