Retirement Planning: Are Women Less Risk Tolerant Than Men?

Due to lower earnings, longer retirements and such demands as childbirth, child care and elder care taking them out of the workforce during their working years, women are less risk-tolerant investors than men.

At least that’s the idea parroted in the financial industry. But is it true?

The data is plentiful, but not quite conclusive. For instance, a Wells Fargo study on women and investing found that 21 percent of men – compared with 29 percent of women – classify themselves as “more conservative” in their investing habits, while 6 percent of men and 2 percent of women think of themselves as “more aggressive.”

The same study found that women often lower expectations for returns than men – and that, while half of all men believe the stock market is a good place to grow their retirement savings, just 26 percent of women believe the same.

Despite these different attitudes, actual returns don’t differ much between the two sexes. The Wells Fargo report found that women earned slightly higher returns, and a five-year Vanguard study showed a difference of only 0.5 percent in annual average returns. In fact, Vanguard’s research showed similar overall stock exposure between men and women: 74 percent and 73 percent, respectively, in 2014.

Which leads to the most important question regarding this issue: What should any given woman’s risk allocation be as she plans for retirement, given her assets, goals and longevity? There are a few other factors at play, and planners need to understand them to best serve their female clients.

The age difference

Are women more really more risk-averse than men? “It depends on how old the woman is,” says Brad Bernstein, UBS Wealth Management senior vice president. “On the whole, men tend to be more aggressive retirement investors than women, but that falls apart when looking at their ages.”

According to a UBS Investor Insights survey, younger women are actually riskier than men of the same age. Twenty-seven percent of the 25-to-49 female cohort describe themselves as aggressive, compared with 19 percent of all men. Women also tend to be more interested in outperforming the market and less so in earning smaller returns to avoid losses.

Around age 60, however, things change – in a big way.

“As we get older, we start becoming more and more concerned because we realize we’re going to outlive our spouses and might have to play catch-up,” says Mischelle Copeland, Wells Fargo Advisors first vice president of Investments. UBS data also show that 51 percent of women older than 60 describe themselves as conservative, compared with 38 percent of men. Not only that, but they’re significantly more concerned with longevity risks: the future of Social Security, the future affordability of healthcare and outliving their assets.

Life events

The switch may not be due to age alone. More specifically, a few of life’s turning points seem to significantly impact women’s risk preferences – often to a greater degree than for men who experience the same.

Chief among these events is marriage.

“Single women are bigger risk takers than married women, [the latter of which] have a tendency of leaning on their spouses,” says Copeland. In fact, single women earned the highest returns in Wells Fargo’s study, and they traded stocks more frequently than married women. On the other hand, a 2013 Fidelity study found that only 4 percent of married women were willing to invest substantially for higher returns at the risk of losing principal, compared with 15 percent of married men.

Whether due to death or divorce, losing a spouse can also cause fear and uncertainty, particularly for those women whose husbands had handled the finances.

“[These women’s] focus isn’t needing more income – it’s losing principal because they may not be able to go back and earn it,” says Bernstein. “If you’re alone, you’re going to be much more fearful and risk-averse.”

Finally, becoming a caregiver – a frequent occurrence for today’s “sandwich generation” of retirees – clarifies the potential costs of long-term care. “As caregivers, women get a firsthand look at how difficult is to care for someone, and they worry what it might cost them 10 to 20 years from now,” says Karen Robbins, senior vice president of UBS Wealth Management.