While female investors often share the same financial goals as their male counterparts, there’s a key difference that women should consider when developing a financial plan: the cost of living longer.

Women Live Longer

The average 65-year-old, high-net-worth woman is expected to live to 94.* The average 65-year-old, high-net-worth man is expected to live to 92. The longest-lived female in this wealth and age group will survive to age 101; the longest-lived male in this group, to 98.

While the prospect of a longer life may be wonderful, women often fail to factor it in when planning to support their lifetime expenses. This oversight could lead them to outlive their assets, especially in light of today’s capital-market conditions.

Low Bond Yields Make Investing Success Harder

Today’s low bond yields mean that conservative (bond-heavy) investment portfolios can only support modest spending over time, especially over women’s potentially longer life spans. A single 65-year-old man with $1 million in a conservative portfolio (20% in stocks and 80% in bonds) can withdraw about $30,000 each year (indexed to inflation) and still be highly confident that he won’t deplete his portfolio (Display). A woman of the same age, with the same wealth and asset allocation can only withdraw $27,500 with the same confidence. That $ 2,500 annual difference, when grown with inflation, adds up to $115,000 less spending for the woman over her longer expected life span, or more than 10% of her starting wealth.

Closing the Gender Gap in Spending

What does this tell us? Everyone needs a substantial nest egg to support his or her spending, but women need to save more—or take more investment risk. Most opt for the former strategy: A 2017 Fidelity study found that women on average saved more from their salaries. The same study found that while women positioned their portfolios more conservatively, they’re getting better at ensuring they’re appropriately allocated.

The Display also shows how much more investment risk women need to take to safely spend as much as men in retirement. We define risk as the potential for a big loss (20% from peak to trough) at some point over 20 years, as projected by our Wealth Forecasting System.

A 65-year-old man can invest $1 million in a conservative portfolio (20% stocks, 80% bonds) to garner $30,000 a year, grown with inflation, for life. A 65-year-old woman needs to invest $1 million in a moderate portfolio (40% stocks, 60% bonds) to garner a similar income for life. As a result, we project that the man faces a 2% chance of experiencing a big loss; the woman faces a 10% chance. That 10% probability is still quite low, but it’s five times higher than the risk the man faces.

Is there an alternative for women who don’t have an appetite for more risk? Yes: Build a larger nest egg. To sustain $30,000 in spending over her lifetime, a 65-year-old woman with a conservative portfolio would need to save $100,000 more than a man.

Planning for Longevity

Whether you decide to save more or take more risk, it’s important to know where you stand today relative to your financial goals. You should know how much you are spending and saving, how much your overall net worth is, how your assets are allocated—and where all that is likely to lead you.

Appraising your financial well-being should be no different than assessing your health. Annual checkups are not enough. Stay on top of where you are versus your plan, so you can be prepared for the curve balls life will inevitably throw at you.

*Longevity data are from the Society of Actuaries and M Financial Group.

The Bernstein Wealth Forecasting System seeks to help investors make prudent decisions by estimating the long-term results of potential strategies. It uses the Bernstein Capital Markets Engine to simulate 10,000 plausible paths of return for various combinations of portfolios, and for taxable accounts, it takes the investor’s tax rate into consideration.

For more tips on becoming financially engaged, explore Women & Wealth, a new Bernstein podcast series designed to educate, empower, and inspire female investors, and for additional thought leadership, check out the related blogs here.

The views expressed herein do not constitute and should not be considered to be legal or tax advice. The tax rules are complicated, and their impact on a particular individual may differ depending on the individual’s specific circumstances. Please consult with your legal or tax advisor regarding your specific situation.

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