Skip to Content
US Videos

For Women, Risk Is Something to Embrace

Earning less, a shorter career, and living longer should steer women toward riskier assets, Morningstar's Laura Lutton says.


Christine Benz: Hi, I’m Christine Benz from To amass sufficient savings for retirement, women need to take more risk, not less. Joining me to discuss that topic is Laura Lutton, she is director of manager research for North America.

Laura, thank you so much for being here.

Laura Lutton: Thanks for having me.

Benz: Let’s start out this discussion by talking about the characteristics that necessitate that women take on more risk. Why do they need to potentially steer more money into risky assets?

Lutton: Well, women have a couple of disadvantages when it comes to retirement savings. First, we tend to earn less on the dollar than men do over the course of our careers. And then there’s some research that’s come out, that says that most women take a break from their career about once per decade. Either they’re going back to school for themselves, maybe they’re taking time off to care for a family member, child, parents another relative, and all of those factors often add up to having a lower retirement savings than men. And BNY Mellon has actually done some work with actuarial data for women and that firm has suggested that women need to earn about 0.5 percentage point more in return on their retirement portfolio to make sure that their nest egg lasts as long as they do.

Benz: OK. So I know studies that have been done in the past have kind of examined women's investing behaviors, one takeaway from some older research was that women tend to be a little more risk-averse. But it seems that based on this research that women do need to step up and take a little more risk in their portfolios. How should they go about doing that?

Lutton: So if women have to earn 0.5 percentage point more than men per year that means that if a man earn 7%, they've got to earn 7.5%, right? So how do they do that? One way is to be in riskier asset classes or asset classes that have a higher return profile like equities, for example.

Benz: Right.

Lutton: Or non-U.S. equity within that bucket. So you probably want to tip a little bit more that way to generate higher return over time. You're probably going to incur some more volatility with that choice, but again you got to make that nest egg last. And one of the things I didn't mention at the top is that women tend to live longer.

Benz: Yes.

Lutton: Right. And women tend to end their lives as single women, right, they end up outliving their spouses and so forth. So making that nest egg last is a big priority. I think another way that women can boost their returns is by being very careful about what they're paying for their investments--by sticking with low-cost investments you can get quite a bit toward that 0.5 percentage point of return per year. So really focusing on the bottom line and how much you’re paying and making sure that you’ve got low-cost investments throughout your portfolio should especially be a priority for women.

Benz: OK. Wanted to highlight, I remember talking to some retirement researchers at Vanguard last year. One thing that came out based on their 401(k) participant behavior was that yes, women's balances did tend to be lower than males' in part because of some of this truncated time in the workforce.

Lutton: Right.

Benz: But one thing that Vanguard found was that women were more inclined to take advantage of advice that may be embedded within the 401(k) plans, maybe it's that old thing about asking for directions. But they found that women were using target-date funds more readily and that women were also taking advantage of managed account options. So is that potentially one solution for women trying to get into the right ballpark for their risk level?

Lutton: Yeah, I think the retirement industry in general has done a nice job of evolving to more user-friendly investments. Most new dollars into 401(k) plans are going into target-date funds, that's where your asset allocation is managed for you over time; you're in more aggressive, riskier assets when you're younger and then you take risk off the table as you get older. That’s a much better option for investors than the old-fashioned default choices, which were cash or company stock or stable value. So those are great improvements, and I think creating user-friendly retirement plans has been a good thing. One thing I would mention, though, is that a lot of target-date funds use life expectancy in their modeling at 80 years old, and a lot of women last longer than 80 years.

Benz: Greatly exceeds that.

Lutton: So you know that whether you decide in your target-date series that you want to pretend you’re little younger in the plan or are going to retire a little later and increase your exposure to those higher-returning asset classes for longer, that may be an option you want to explore.

Benz: And I know plans now sometimes have a conservative, moderate, and aggressive option.

Lutton: Yeah.

Benz: So maybe opt for the aggressive one?

Lutton: Why not.

Benz: OK. Laura, thank you so much for being here to discuss this really important topic.

Lutton: Thank you.

Benz: Thanks for watching, I’m Christine Benz for

Christine Benz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.