Taking Charge of Your Finances
Save in tax-advantaged retirement accounts: 401(k)s, IRAs, Roth IRAs, and others.
Develop an appropriate investment strategy that helps you accomplish your goals.
Plan ahead for increases in health care costs and caring for family members.
Partner with a trusted advisor that will educate you and put your best interests first.
When it comes to financial planning, women are likely to face different challenges than men. For one, they earn less than men on average, and they are more likely to work part-time jobs or take time away from their careers to raise children and care for their families. Time off and lower lifetime income means women face unique financial planning challenges.
Here is a look at some common financial issues that women face and strategies to address them.
Less income means less money to devote to savings.
On average, women earn just over $0.80 on the dollar compared to men, leaving them with less money available to pursue financial goals, like saving for retirement.
If you work in a job that offers a retirement plan, such as a 401(k), be sure to save as much as you can. The tax advantages of these accounts can help boost your savings potential. If your employer offers matching funds, save at least enough to receive the match, and try to max out your savings if you can. In 2021, employees can save up to $19,500 in their 401(k)s with an additional $6,500 catch-up contribution for those age 50 and older. If you want to save even more, or you do not have access to an employer-sponsored 401(k), then consider a Traditional or Roth IRA that allows you to save $6,000 per year in tax-advantaged accounts, or $7,000 if you’re age 50 and older.
Lower long-term investment returns.
If the concept of investing is intimidating or uncomfortable for you, you are not alone. Studies have shown that women, on average, tend to have less confidence when it comes to investing than men. It is this lack of confidence and uncertainty that causes many women to invest in more conservative investments even when they have the capacity to save, potentially limiting the earnings they could receive on their savings.
Partner with a financial professional that will take the time to educate you on the complexities of investing and clearly explain how certain investment strategies are most beneficial to you given your goals, time horizon, and risk tolerance. Once you are invested in an appropriate asset allocation, stay the course for the best chance of success.
Potentially lower Social Security benefits.
Social Security benefits are calculated based on a person’s 35 top-earning years. Because women earn less, they tend to have smaller benefits than their male counterparts. Be aware of the various claiming strategies available that may get you a larger benefit.
If your spouse claims Social Security benefits, you may be eligible for a benefit equal to half of their benefit. This amount may be greater than what you qualify for based on your own work history. If you are divorced but were married for at least 10 years, you may qualify for a benefit based on your ex-spouse’s employment record.
Caring for family members.
Women, in general, tend to do more care work for other people, including caring for children, aging parents, spouses, and grandkids. This work isn’t compensated and can mean women aren’t able to participate fully in the workforce. Even when they do, working mothers take a financial hit equal to about $16,000 in annual lost wages over the course of their careers compared to working fathers.
If you are still working and your children or elderly parents need care, check with your employer to see what resources they offer to help. Some employers will help you find and hire childcare or eldercare. Although it is relatively rare, some companies will even offer company-subsidized childcare or backup eldercare.
Women live longer on average than men, meaning they need to ensure that they have enough savings to cover more years’ worth of retirement expenses. The average life expectancy for a man in the United States is about 76 years, while the average life expectancy for a woman in the U.S. is about 81 years. Longer life expectancy is another reason to save aggressively in tax-advantaged retirement accounts, if possible.
Rising health care costs can complicate matters, as health care needs may increase with age. Plan ahead for long-term care costs. Consider purchasing long-term care insurance, which covers the cost of assistance with activities of daily living, such as bathing, dressing, or eating. It can also cover the cost of custodial care in a nursing home or assisted living facility.
While women as a whole face unique challenges in financial planning and saving for retirement, there are several factors that differentiate one woman's situation from another. Speaking with a financial professional can validate the path you are currently on or find ways to optimize your wealth going forward. Just one conversation will give you the confidence you need to feel secure about your financial future. The sooner you have the conversation, the sooner you can focus on the things in life that matter most to you.
Take charge today for more peace of mind tomorrow!
Private Wealth Advisor