Many women are becoming smarter with their financial future
by Keythe Aguilar CFP® #ProCoreAdvisors
– Yet some continue to encounter hurdles
Women are controlling more and more wealth these days. However there are a few situations that many women do not think about, which can derail how their financial future ends up. I myself at one point decided to take the path of being a stay at home mom. I felt not only lucky, but proud to be there for my kids as they grew up and to make the best home for them as possible. The dilemma is that, in general, we perceive our wealth and money in the present with no clear strategy or expectations about its future. We get lost in the happy ever after story assuming all will workout for the best without understanding the consequences of not properly planning.
In my case, as well as for many women out there who decide to take similar paths, we face hidden financial hurdles which are especially apparent in the following circumstances:
- Divorce. A split from your partner usually means an equal split of the present assets and or liabilities, but there can be a big difference between “equal” and “equitable”. A woman may divorce only to find she has less earning potential than her former spouse, and her standard of living may suffer due to the income reduction. This is a familiar scenario for women who have helped their spouses build a business or professional practice; or who put their career on hold or passed on promotions to accommodate family life and or their spouses career goals. While these sacrifices may yield a promising future together, unfortunately, in the event of a divorce, this sacrifice could be significant. It is important that you take these considerations into account and to plan and manage your savings as well as debt at every stage, so that in the event of a split, there could be a plan or assets in place for you to equal out the playing field.
- Absence from the workplace. You may take time out from work to raise children or care for aging parents; these are both very common occurrences for many women as well as men these days, but they can drastically impact your retirement. When you are not collecting a paycheck you are not paying into Social Security. With either less being paid into the system or skipping several years of contributing all together, the less that is coming your way in retirement. Not to mention that an extended absence from the office most likely will have a longer effect on your contribute rate to your workplace retirement plan.
These days many people end up relying on Social Security benefits for the bulk of their retirement needs. That situation is most common among elderly single women. Just because you are not working or in a part time position that does not provide you with a workplace retirement plan does not mean you should ignore your retirement and savings planning. If your spouse is the only one earning income, the IRS allows for a spousal IRA which allows you to put up to $5,500 a year away in your name and still get a tax deduction even though you did not earn any income yourself. You can also open up an individual investment or savings account in your name alone and budget an amount every month. Even if there is no tax advantage, you should plan for the future.
- Investing. Protecting retirement savings is wise, but being risk averse does have its downside. By and large, women invest more conservatively than men1. Some women may adopt such an extremely conservative investment approach, in which their portfolios earn so little, that their retirement incomes can’t keep up with even moderate inflation. Without a growth investment strategy, the risk of outliving your money may increase.
- Living Longer No woman wants to wake up one day at 70, 80 or 90 and find that there isn’t enough money to meet health care costs or basic living expenses. The fact is that… “Without Social Security, more than 40% of Americans aged 65 and older would live in poverty.2”
Elderly women are more vulnerable to falling into this statistic due to the reasons I am stating above.Imagine having to choose between paying for prescription drugs or food. Or weighing whether to pay the mortgage or get the car fixed. Anyone who ends up in such straits probably wishes they had planned differently. With the future of government help through social security and state funded medical programs not being properly funded, It has never been more important than today to sit down and develop a plan to reach the goals of not running out of money in retirement.
#womenandfinance #financialplanning
Citation.
1 – Bajtelsmit and VanDerhei, 1996; Hinz, McCarthy, and Turner, 1996
