A Financial Wake-up Call for Women
Today, on average, a female age 55 can expect to live another 27½ years, according to the U.S. Deptartment of Labor. Since women have typically not been in the labor force as many years as our male counterparts, nor have we enjoyed salary parity, we face a double whammy – lower salaries resulting in both lower pensions and less after-tax savings. The compounding of these annual losses is ample reason to assess our finances NOW!
Many women have not amassed sufficient Social Security credits or private pensions, and yet they will be living longer and perhaps living alone.
Sam Roberts revealed that 51% of Women Are Now Living Without a Spouse in his January 16, 2007 New York Times article, compared to only 35% and 49% in 1950 and 2000 respectively.
“For better or worse, women are less dependent on men or the institution of marriage,” William Frey of the Brookings Institute told The Times. “Younger women understand this better, and are preparing to live longer parts of their lives alone or with non-married partners.”
Seniors-site.com reports that 77% and 85% of all the women aged 65-74, and 75+, respectively, are widows. A full 90% of all women will be in charge singularly of their own finances at one point or another in their life.
All these statistics reaffirm that it’s time to roll up our sleeves and figure out how to live fully and plan effectively to secure our financial futures, so we don’t risk outliving our money.
Working Longer
Boomer women are enjoying our jobs – having crashed through a few glass ceilings to finally earn more proportionate money, and perhaps having successfully negotiated virtual or flex-time – so we are no longer defaulting to retiring at age 62 or 65.
Working longer affords us opportunities to more fully maximize our pre-tax savings, whose contributions escape current taxation.
If, for example, your salary is $80,000 and you contribute $15,500 to your company’s 401(k) plan, your W-2 tax form will only show earned income of $64,500, saving you $4,650 in a 30% income tax bracket. So, if you calculated you could only afford to “do without” $10,850 of your take-home pay, when you consider the income tax savings, you can effectively increase your contribution up to the $15,500 without negatively affecting your cash flow. The law requires you to instruct your company to deduct your contribution before you earn it, however.
Investing Smarter
OppenheimerFunds’ Women & InvestingSM Program reports the following statistics:
- Women today are smarter, more confident investors
- 43% of women surveyed consider themselves very or somewhat knowledgeable
about investing
- 66% feel more knowledgeable because they are working with a financial advisor
- 67% have invested for retirement
But there is still progress to be made – women lack understanding of investment vehicles:
- 76% wish they had learned more about investing growing up
- 62% do not understand how a mutual fund works
- Only 35% say they’re more knowledgeable about investing than they were five years ago
Financial advisors give women a confidence boost:
- 66% are more comfortable with investing
- 62% are more confident about having enough money for the future
Bottom line? “Women need to take a more active role in investing, and they agree that there are decided benefits to working with a financial advisor. They not only feel like more successful investors, they generally are.”
While there is no substitute for making a list of your current investments and insurance policies and writing down your goals, it’s also a great idea to hire a financial planner to coach you. Remember that your investments affect your income taxes, so it’s penultimate that someone oversees the timing of realizing capital gains in your investment portfolio to take maximum advantage of the tax laws in any given year.
A qualified Certified Financial Planner understands and utilizes integrated proactive planning: bunching deductions or electing to defer income, prepayment of your state income tax before year’s end, setting up a pension plan if self-employed, utilizing your business’ Section 279 deduction, stacking your gift-splits for Section 529 plans, choosing a separate Sub S or C corp. business entity, establishing a defined contribution plan to receive up to a $45,000 contribution a year, etc. Bear in mind, compounded opportunity costs lost without good planning could result in your having to work longer than you might want.
Financial planners get paid in a myriad of ways – commission (free planning/advice and commissions on product), fee-based (a fee for planning/advice and commissions on products) and fee-only (fee for planning and fee on assets). Only the latter are required to serve in a fiduciary capacity, however.
Ensure that your planner – regardless of how they are paid – will provide you with annual performance reporting so you can monitor your results relative to the risks inherent in your portfolio. It’s not enough to receive monthly statements because with monies being deposited (and possibly withdrawn) during the year, it is nigh impossible to calculate your rate of investment return on a handheld calculator.
Costs are one area you can control in the world of investing. Both the planner’s compensation as well as the annual expenses of your investments should be minimized as they reduce your total return.
The Certified Financial Planner you choose needs to be someone with whom you can relate well. If during the initial interview your questions aren’t eagerly received and answered, move on. If you feel talked down to, or you detect impatience, move on. In addition, your planner should have at least 10 years experience; you want to employ someone who’s seen a bear on other than the cover of National Geographic!
Obtaining Sufficient Insurance
The importance of adequate health, long-term care, life, disability, and property and casualty insurance cannot be emphasized enough and play an important role in an overall financial plan.
The Kaiser Family Foundation (KFF) statistics show that while the majority of women carry some form of health coverage - 38% are covered at work, (versus 51% of men) - 17 million American women over the age of 18 do not. Untreated illnesses result in lost wages, and mounting medical bills often reduce women to poverty status.
Approximately 75% of home care for disabled seniors is unpaid and generally provided by a female relative, average age 57. Because this care-giving represents an additional financial, emotional, and physical burden to women in mid- and late life, Betty Soldz, co-author of Wise Choices Beyond Midlife: Women Mapping the Journey Ahead, advises that women are eventually most likely to need help with ADLs – activities of daily living - and should consider purchasing Long Term Care Insurance.
The Brookings Institute estimates that if you are 65 years old you have a:
- 20% chance of never incurring long-term care expenses in a nursing home or at home;
- 58% chance of incurring expenses between $1 and $50,000;
- 9% chance of incurring expenses between $50,000 and $100,000 and
- 12% chance of incurring expenses over $100,000.
Yet, 75% of those who enter a nursing home stay only one year or less, and 52% of those stay less than three months. Should you be apprehensive about paying premiums for long-term care insurance that you may not use, buy life insurance instead, whose death benefit could repay a loan that you or your child would take to provide long-term health care, if needed.
With women representing more than half the American workers, imagine that you died yesterday, and if there is a need for ongoing income for your survivors, love them enough to buy adequate life insurance. If you are partnered, imagine your partner died yesterday, and then insure them for however many years equivalent of their salary that you wish to be spared making hasty decisions, i.e., if they are earning $100,000, buy $400,000 to buy you four years or add more to pay off a mortgage, for example.
Also, check that your employer and/or state of residence provides short and long-term disability coverage and if not, purchase some on your own. Disability without income has been likened to a living death.
Finally, review your property and casualty insurance, preferably with a Chartered Property Casualty Underwriter (CPCU), to ensure that your home(s), auto(s), boat(s), plane(s) and jewelry coverage is adequate. Consider boosting your deductibles to route more of your premiums to increasing your levels of liability coverage, preferably via a separate umbrella policy. All the work you’ve put into your investment portfolio, not to mention future wages, could be instantaneously moot in the event of a sizable lawsuit.
We can do it, women, but we DO need to plan and implement our plan. Let’s begin now!SPW
Debra L. Morrison, CFP™, MS, AEP, is a Certified Financial Planner, Accredited Estate Planner and has a Masters Degree in Retirement Planning. |
