Traditional investment plans unsuitable for many women: Study

The Monash University report, The future of the 60/40 allocation: Modelling the performance of the 60/40 portfolio in retirement, used computer simulations to examine retirement outcomes in Australia and the US.

It tested how well the classic 60/40 strategy, which allocates 60 per cent of savings to equities for growth and 40 per cent to bonds for stability, could support retirees over a 25-year period, either at a comfortable lifestyle of $53,289 a year or a modest lifestyle of $34,522 a year for single retirees, as defined by standard benchmarks in Australia.

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The researchers found that women typically retire with lower superannuation balances in Australia under the traditional 60/40 investment approach.

MCFS senior research fellow and lead author of the study, Dr Bei Cui, said since women have fewer external income streams, they were more likely to run down their savings earlier, especially if aiming for a comfortable 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,” 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.”

Common disadvantages women face in retirement include having worked in sectors impacted by the gender pay gap and taking long periods off to care for family.

Women are also likely to retire earlier. Data released by BSI highlighted this push to an early, potentially unstable retirement is often not a woman’s choice, with 32 per cent of Australian women feeling compelled by poor physical health, 23 per cent due to difficulties experienced during menopause and 14 per cent because of the pay gap.

“Women’s confidence about their prospects at work are in dramatic decline,” said Kate Field, global head health, safety and wellbeing at BSI.

“There is an urgent need for intervention with a true culture of care; employers must take a holistic view of the experiences that shape women’s working lives and respond to them.”

With early retirement for many women already stressing their retirement balances, the Monash study concluded that single investment formulas, such as 60/40, would not be enough, calling for flexible retirement planning.

It recommends withdrawal strategies that adjust to market conditions and greater financial literacy to help retirees, particularly women, understand the risks and trade-offs.

“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,” said MCFS deputy director and co-author of the research, Associate Professor Ummul Ruthbah.

Study co-author, Associate Professor Nga Pham, echoed this sentiment.

“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,” Pham said.