Wharton Economist: Women at Greater Risk in Retirement Than Men

Traditional Financial Advice Is At Odds with Women's Prospect of
Living More Than 30 Years in Retirement
NEW YORK--(Business Wire)--
Women are not doing enough to prepare for their financial security
in retirement and they may be making misguided investment decisions
based on their unique circumstances, according to a new study by
Wharton professor David F. Babbel and co-sponsored by New York Life
Insurance Company. In addition to being faced with decreasing rates of
return on Social Security contributions, the demise of defined benefit
pensions, and the added risk of outliving their nest eggs, women are
living longer than men and therefore need to accumulate enough wealth
to finance additional retirement years.

Highlights of the paper include:

-- As a result of living longer than males, women have
traditionally been advised to assume greater financial risk in
order to obtain the higher returns necessary to finance longer
retirements; however these high-risk investment strategies can
be flawed, often exposing women to unnecessary risk over the
long term.

-- Women should allocate substantially less to higher-risk
investments, stocks, and equity mutual funds, than what is
typically recommended.

-- Many economists believe that lifetime income annuities should
play a substantially larger role than previously suggested in
retirement arrangements and should comprise 40% to 80% of
total retirement assets for most people.

-- Income annuities from highly rated companies are a reliable,
affordable source of guaranteed lifetime income.

-- During retirement, lifetime income annuities typically yield
more than CDs, bonds, money market funds and what can be
expected from common stock dividends without the market risk.

-- Income annuities can provide secure income for one's entire
lifetime for 25-40% less money than it would cost an
individual to provide a similar level of secure lifetime
income through traditional means, thanks to an insurer's
ability to spread risk across large numbers of people.

-- Even though initially women will pay more than men for each
dollar of income, women actually pay less than men for
equivalent annuities when their extended life expectancy is
taken into account.

These findings are outlined in a paper entitled "Lifetime Income
for Women: A Financial Economist's Perspective," which is based on an
academic study entitled "Rational Decumulation," co-authored by
Professor David F. Babbel and Professor Craig B. Merrill, both Fellows
of the Wharton Financial Institutions Center. The academic study was
co-sponsored by the Center and by New York Life Insurance Company. In
addition to his own academic study, in this paper Professor Babbel
bases his findings on those of seventy other academic studies
performed since 1999, and explores financial options for women,
compares income annuities against other asset classes and disputes
several misconceptions with regard to pricing and flexibility of
income annuities.

"Economists from all over the world agree on the importance of
lifetime income annuities and their central role in retirement
planning," said Professor Babbel. "However, annuities are even more
important for women because their risks are compounded by being faced
with longer life expectancy as well as potentially outliving their
husbands by six years or more. A healthy woman at age 65 has a 50%
chance of living beyond age 88 and a 25% chance of living beyond 94."

Professor Babbel reviewed more than a dozen studies which show
that males, being more tolerant of risk than females, are more likely
to place their funds in risky investments. He cites research, stating
that married women may have to live with the consequence of those
risky choices made by their husbands unless they participate in the
financial decision-making.

"In addition," Babbel adds, "women have traditionally been advised
to aggressively invest in hopes of attaining higher returns. This is
contrary to what our research demonstrates. When compared under the
rigorous analytical apparatus of economic science to other available
choices for retirement income, lifetime income annuities, when
supplemented with fixed income investments and equities, are the best
way we have now to provide for retirement."

The study shows how annuitization provides for greater control of
wealth. For example, an appropriate mix of annuities enables women to
finance additional investments with remaining funds such as stocks,
bonds or mutual funds, create an emergency fund, or gift with little
impact on their financial security, as the money is not needed to fund
their remaining lifetime.

The study also reveals that the market for lifetime income
annuities has become very competitive in recent years, leading to
advances in product features and more favorable pricing.

"Markups have come down from the 6-10 percent levels a decade ago
to less than half that today. Combined with the modernization of
income annuities in recent years, insurers have eliminated most, if
not all, of the reasons why consumers have largely avoided these
products in the past. With our academic findings now defining the
enormous consumer benefits of income annuities, the arguments are
compelling in favor of adding these products to retirement
portfolios," stated Professor Babbel.

"Unique flexibilities built into modern income annuities make them
even more attractive to women. Today's annuities include features that
allow access to cash when needed, inflation protection, the
opportunity to participate in potential gains from rising interest
rates, and the ability to leave a legacy for one's heirs, all while
providing welcome peace of mind in retirement," said Mike Gallo,
senior vice president, New York Life.

"In addition to the flexibility of this product, women will find
that annuities offer a good value for the cost. In fact, women are
actually getting the same annuity as men at a discount when factoring
in the larger number of monthly payments over their lifetime," said
Professor Babbel.

Since women receive, on average, 42 extra monthly payments to
accommodate their extended life expectancy, the annuity is spread out
over a longer period of time, resulting in a lower monthly income.
However, women ultimately pay less than men for the same annuity when
comparing purchase cost with total benefits paid.

"As women face retirement, the reality of living longer and
outliving their husbands, coupled with the future of Social Security
and fading corporate pensions necessitates a hard look at income
annuities as the core of their retirement portfolios," stated
Professor Babbel. "I believe the study shows that income annuities
clearly should be more widely used, given that highly rated insurance
companies are reliable sources of guaranteed income streams in
retirement. And, as the only product that guarantees income for life,
I encourage women to educate themselves on the product, learn more
about the new features and take charge of their retirement futures."

A copy of Professor Babbel and Professor Merrill's academic study,
"Rational Decumulation," can be downloaded from
http://fic.wharton.upenn.edu/fic/papers/06/p0614.htm Professor
Babbel's paper, "Lifetime Income for Women: A Financial Economist's
Perspective," can be downloaded from
http://fic.wharton.upenn.edu/fic/Policy%20page/personal%20finance.htm

David F. Babbel is Professor of Insurance and Risk Management and
Professor of Finance at The Wharton School of Business, University of
Pennsylvania and is Senior Advisor and Vice President at CRA
International. Prior to joining CRA as a vice president in the Finance
Platform and head of the Insurance Economics Practice, Dr. Babbel was
a senior financial economist in the Financial Sector Development
Department of the World Bank, and a vice president in the Pension and
Insurance Department and senior advisor to Goldman Sachs. With over
one hundred articles and publications to his credit, along with a
number of books and monographs, Dr. Babbel is an expert in the fields
of finance, investments, risk management, insurance, pensions, and
international business. His specialties within these fields are life
insurance, annuities, asset/liability management, fixed income
securities, and valuation. In addition, Dr. Babbel previously served
on the faculty at the Haas School in the University of California at
Berkeley. During his 30-year career as an educator, Dr. Babbel has
taught courses in finance, investments, fixed income, insurance, and
risk management at the undergraduate, graduate, doctoral, and
executive levels.

New York Life Insurance Company, a Fortune 100 company founded in
1845, is the largest mutual life insurance company in the United
States and one of the largest life insurers in the world. New York
Life has the highest possible financial strength ratings from all four
of the major credit rating agencies. Headquartered in New York City,
New York Life's family of companies offers life insurance, retirement
income, investments and long-term care insurance. New York Life
Investment Management LLC provides institutional asset management and
retirement plan services. Other New York Life affiliates provide an
array of securities products and services, as well as institutional
and retail mutual funds.

Please visit New York Life's Web site at www.newyorklife.com and
www.guaranteesmatter.com, a site dedicated to retirement issues,
challenges, and solutions, for more information.

New York Life
William Werfelman, 212-576-5385
William_Werfelman@newyorklife.com
or
Sloane & Company
John Hartz, 212-446-1872
jhartz@sloanepr.com

Copyright Business Wire 2008