As women, we see, perhaps in sharper focus, what women do to provide emotional, spiritual, and financial support for those they care for. Women often take lower paying positions in business in order to have more time with their children. Sometimes savings are sacrificed in order to pay for education and childcare. As their parents age, more often, they become the primary caretaker of the family.
When it comes to finances, women often put others before themselves when they address the equation. While the altruism in this is commendable, it has led to a great disparity in financial well-being between women and men. In Financial Finesse's most recent Gender Gap in Wellness report the key findings were:
- A 26% gap in the shortfall in retirement savings between the median 45-year old man and woman's retirement savings needed to replace 70% of their pre-retirement income plus estimated healthcare costs.
- The gap climbed to a disturbing 95% when looking at the additional savings needed to cover the same estimated retirement expenditures such as housing, medicine and food.
- A large "confidence gap" between the genders in the areas of money management and investingi
So how can this gap shrink? While ensuring that you are maximizing your retirement plan contributions, having an emergency fund, paying down debt and increasing income are all important strategies for planning for a successful retirement and reducing the financial wellness gender gap, there are other things to consider and plan for in advance. And they are not as easy or straightforward to consider.
According to research from the Family Caregiver Alliance, women make up more than 66% of all caregivers and their average age is 49 years old.ii It is estimated that between the age of 50 and 65, retirement savings in 401(k) and IRA nearly doubles. If women are sacrificing their work and therefore, their savings during that time period, the effect is detrimental on their retirement years.
Taking time off or leaving your paid job to care for your family is a major life decision. It will not only have an impact on your finances, but on your physical and emotional well-being as well. Having a conversation with your spouse and perhaps a trusted advisor can help you look at all of the factors involved in this type of sacrifice. You and your spouse need to acknowledge that you'll be giving up your salary (in peak earning years), career momentum, health and retirement benefits, professional relationships, and so on. It will be important to ensure that you are protected in the event your spouse should pass away suddenly or if you get a divorce.
Post-nuptial agreements are protective measures that address your financial security. While many people dread the idea of having this kind of discussion with their soon-to-be spouse, it is a critical one to have. Making a financial sacrifice for the good of the family is a burden that should not be shared by you and you alone. Planning for the worst in these types of situations is the only way to ensure that you are protected in the event the worst occurs.
According to the 2010 US census, over 80% of Americans aged 100 or older were women. Women live an average of five years longer than men do and, according to the Administration on Aging, about 47% of women over the age of 75 live alone.iii Those are the statistics. What does this mean? The majority of successful marriages will end with the husband passing away before his wife and having a plan for that is essential to your financial well-being. This plan will include knowing what your Social Security earnings will be, knowing the amount of assets you will have based on calculations and projections and knowing what insurances there are to further protect you. The operative word is knowing.
Hearts & Wallets, a retirement market research firm, examined retirement decision-making among couples and found that only 43 percent of them plan for retirement together, and 80 percent of the spouses who were not involved were women approaching retirement age. That's hardly a recipe for a comfortable retirement, given the high likelihood of women outliving their husbands for many years.
Women need to participate in the financial decision making in their relationships and not just in how they are contributing to their own retirement. Understanding how money is being saved and invested, what your estate plan looks like, and what types of plans are in place for big transitions like retirement and loss of a spouse—these are all critical elements to ensuring your financial well-being for years to come.
CONFIDENCE AND RISK
One of the key takeaways from the Financial Finesse report was that women feel less confident than men when it comes to investing and money management. This lack of confidence translates to risk aversion. Unfortunately, this type of behavior can be more risky for women investors who need to assume some risk in order to satisfy their financial needs in retirement. With a longer life span and higher health care costs, the importance of investing in globally diversified portfolios with moderate exposure to equities is twofold.
If you lack confidence in investing and you have a fear of risking too much, it may be helpful to look at investing as a means by which a purpose can be fulfilled. If you are investing for a purpose rather than a monetary target, you might be more willing to look at long-term goals rather than short-term ebbs and flows of investment markets. It might also be reassuring to know that statistics are on your side. In a recent Fidelity study, it was found that over a ten year period, women and men earned roughly equal returns, at 7.3% to 7.4%, but women's portfolios assumed less risk.The Value of an Advisor
There are so many variables to consider when you are approaching your life planning goals. Too often, when faced with what appears to be an insurmountable undertaking, people can turn their back to the issues and leave it for another day. As financial advisors who specialize in the challenges women specifically face, we are able to engage in dialogue and processes of creating a well thought out plan to satisfy your goals and address your concerns.
Trying to manage the prospects of life transitions alone can lead to unintended consequences and an overall sense of unease with the process or the future. If you feel as though the topics in this article ring true for you, then we encourage you to reach out to us or another trusted advisor who can help you address your concerns and guide you to a successful approach to managing all that life may send your way.