Women are powerful. They represent the primary breadwinner in 44% of U.S. households and manage over $14 trillion (51%) of wealth today.[1] Even with that kind of influence, the relationship between women and finances isn’t always an empowered one. Only a little over half of you feel comfortable about your retirement, compared to 68% of men. And, it’s no wonder. There are some disadvantages that are unique to women during working and retirement years.
While women’s earnings are increasing over time, they still make .80 cents on the dollar compared to their male counterparts. This ongoing pay gap leads to lower Social Security benefits and lower retirement savings, not to mention how all of the above may be impacted by maternity and child care leave. On top of that, women have longer life expectancies: 81 years, compared to 76 for men. [2] As a result, there is less money that has to last longer.
If you’re still unsure about the importance of women getting comfortable with their finances, consider this last, startling percentage: 90% of all women will be solely responsible for their own or their families finances at some point in their lives.[3] That means you. And the woman next to you on the park bench. And your best friend. And your mom.
With those statistics, it can feel like the odds are stacked against you. But educating yourself means empowering yourself. Here are some tips to help strengthen your relationship with money, no matter what stage of life you’re in.
Under 30 Years Old
Save for the unexpected. Save 3-6 months’ worth of expenses in a liquid emergency fund. Doing so will allow you to make bold decisions regarding your career, your relationships and your future. Removing yourself from an unhealthy situation takes courage. Usually, it also takes money. Whether it’s a sleazy employer, a dishonest partner or an uncouth landlord, having a pool of cash to help tide you over can enable you to do what you know needs to be done.
Open a Roth IRA and contribute the max. Roth IRA’s have some unique opportunities to serve you as a backup to your emergency fund, provide a portion of the down payment on your first home and other tax and penalty free loopholes. Ideally though, it will grow and support you in retirement. For those of you under 30, it seems the days of dependable pensions are a thing of the past. That means pretax retirement accounts are the new norm. Squirreling away some after tax dollars will give you options down the road.
Stay fiscally responsible. Pay off credit cards before they accrue interest, get your rent check in on time, protect and build your credit score. Your future self will thank you.
30-40 Years Old
Pay down your liabilities. By now you may have a mortgage, an auto loan and other forms of investment that required some debt to obtain. Continue to pay them down.
Evaluate your life insurance coverage. Policies between you and your partner may help to cover the aforementioned debt if the worst were to happen.
Make the match. We mean this in two ways. The first is obvious: many employer plans match a percentage of employee contributions. Assure that you are contributing enough to make the full match. The second meaning: make your investment selection match who you are and what you value. If you spend your weekends protesting oil by rail, perhaps you want to assure your 401k contributions aren’t investing in Exxon Mobil. Open your statement and take a look at what you’re invested in.
40-50 Years Old
Max out your retirement plans. If you have a 401k, you can contribute up to $18,500/year. Do it.
Ask for that raise. Don’t sell yourself short. You are worth it and your employer knows it.
Ask questions of your financial advisor. Most employee-sponsored plans come with a financial advisor whose job it is to answer questions. Ask them about your portfolio, how it’s doing and what your options are. If you don’t understand the answer, say so. This is not the time to be embarrassed. This is the time to break any stigma and intimidation that may lie between you and your investments. This is your money. Own it.
50-60 Years Old
Pay off liabilities. If possible, you want to get to retirement with as few fixed liabilities as possible. Doing so will give you flexibility and options. As liabilities disappear, increase your 401k contributions – at age 50+ you’re able to contribute an additional $5,500/year.
Review your retirement resources and expenses. Most pensions come with various claiming choices (single life, survivorship, lump sum). The decision you make is irrevocable so it’s important to compare your options. If you’re married, your partner’s resources will play a role as well. Get a copy of your Social Security statement. Understand your claiming options and note that there are some unique opportunities that could be available to you. Just as you review your income streams, you also need to get a handle on your expenses. What are they at today? What will they be in retirement? Starting some organized tracking to help you total up what’s going out the door.
Get a plan. Yet another dual meaning recommendation. The first: meet with a Certified Financial Planner (CFP®) to coordinate your resources, get a handle on your net worth and better understand what you can do in your final decade or two of work to create the retirement you’ve always dreamt of. Our team uses a holistic approach to financial planning. We of course work the numbers, but often find our clients appreciate the ongoing focus on quality of life. It’s one of our greatest joys to celebrate the setting, pursuit and achievement of a major life goal with our client families. The second meaning? Develop your estate plan. You may have put together a will or some advanced directives back when the kids were young or you were married, but your life (not to mention tax law) has changed quite a bit since then. Meeting with a trusted estate planning attorney can help synchronize your life and your assets.
60+ Years Old
Develop a plan for income replacement. If retirement is on the horizon, one of your first thoughts is probably, “How will I pay the bills once my paycheck disappears?” Your CFP® and tax professional can help coordinate your hard earned assets and income streams and make the transition seamless.
Create retirement goals. It’s not uncommon for clients to share how difficult it can be to move from saving to spending. Put some thoughts on paper and come up with a plan for your nest egg. Develop philanthropic and volunteer goals. Set regular activity and social objectives. Jot down where you’d like to travel and when. Get specific. Good goals are intrinsic and allow you to be your authentic self; they’re positive, flexible and keep you active. If goal setting feels like a roadblock for you, a great resource is www.getrichslowly.org. They provide tips on creating your 100 word philosophy, sorting your goals into a hierarchy (not timeline), developing your ideal schedule and more.
Analyze your insurance needs. Planning to retire before 65? You need to compare COBRA and other workplace offers with quotes from the healthcare exchange to bridge the gap. Wondering how to navigate the alphabet soup of Medicare coverage A, B, D, F? What about long term care insurance and those term policies that are coming to an end? All of these questions and many more can be answered by an independent insurance agent.
Knowledge is Power
The relationship between women and finances can be a strong one if you want it to be. No matter what phase of life you’re in, knowledge is power. If you come across an advisor, agent or attorney who makes you feel like you’re asking a dumb question, find a new one. There is someone out there who communicates in the same style you do. Honor yourself enough to build a team of professionals who empower you and your relationship with your hard earned assets. You are worth it.
Eager to learn more? Join us later this month for a free financial and estate planning seminar designed specifically by and for women.
[1] Market Wired, “Despite Controlling 14 Trillion in Wealth, American Women Still Have Challenges to Overcome,” 2015, http://www.marketwired.com/press-release/bmo-report-despite-controlling-14-trillion-wealth-american-women-still-have-challenges-tsx-bmo-2006436.htm
[2] Social Security Administration, Actuarial Table, 2014, https://www.ssa.gov/oact/STATS/table4c6.html
[3] Wall Street Journal, “Clients from Venus,” 2012, https://www.wsj.com/articles/SB10001424052970204190504577040402069714264
