Financial planning for women [Financial Perspectives]

Many studies have been done to shed light on the financial habits of women in America. Common themes emerge among them, and while they are not earth shattering, they reinforce that women in today’s society are critical decision makers and more effort should be focused on their needs.

Women today serve multiple roles — mother, caregiver, employee/business owner, coach/mentor — and these responsibilities can be overwhelming at times. In many households, women not only manage the operations of the family, but they also make the financial decisions. These women also work full-time and in some cases also help to care for elderly parents or relatives. Women in this category have been called the “Sandwich Generation” — the generation that cares for children and elderly relatives at the same time.

The increased responsibilities often come at the expense of their own careers and ultimately their financial health.  This is not as much a concern for those that are married as it is for those women who may be divorced, widowed or single.

Some of the statistics available from these studies bring to light things women need think about as they plan for the future.  On average, women are still earning less than men and are still living longer than men. By 2030, there will be 40 million women age 65 or older versus 32 million men. The same study, from Hartford Funds, goes on to say that of the people who live beyond age 100 that 83 percent are women.

Women also tend to spend less time in the workforce due to childrearing and the need to provide care for sick relatives. This results in many women being underprepared for retirement. As stated in the same Harford study, 58 percent of female baby boomers had less than $10,000 saved for retirement.

This is downright scary and will mean that these women will likely depend on Social Security as their sole source of retirement income.  It also means that many women will not retire in the traditional sense.  But what happens if they get sick or develop chronic conditions that render them unable to work?

If you see yourself in this situation what can you do help avoid this happening to you?  It is not rocket science but it may require some difficult decisions. First and foremost you have to understand your entire financial situation – income, expenses, debt and savings/investments.  This may sound silly, but many times folks usually have a good understanding of their income, but do not fully understand their expenses and debt.

Create a budget for yourself that helps to ensure that you are not living beyond your means.  You also need to include an allotment for retirement savings/IRA contributions in this budget.  This is where the hard decisions begin.  As you review your expenses you may find that you are spending significantly on certain services (cable TV and home phone, etc), going out to dinner too frequently or making that stop at Starbucks everyday for a specialty coffee.  In order to manage a budget effectively, you may need to make cuts to some of these expenses, especially if you are not contributing significantly to your savings/retirement program (ideally 10-15 percent of your income).

If you have significant credit card debt ,you have to make it your mission to get rid of this debt as quickly as possible. Credit card debt is probably the single biggest thing that keeps most women from getting ahead.  The exorbitant interest costs that most cards carry result in you paying significantly more for those items you thought you got a good deal on. Carrying significant debt into retirement is huge issue as this is a time when it is much harder to make significant principal payments since your income is usually a lot lower.

Finally, women need to have an investment strategy that is appropriate for their individual situation and risk tolerance.  Many people think that is OK to have retirement assets invested in CDs at a bank even though they will not use it for 10-20 years because it is perceived to be safe.  The principal is in fact safe, but the chance to experience growth is significantly limited in accounts that pay less than .5 percent interest per year.  Inflation will grow at a faster rate thereby reducing the purchasing power of these investments.

In the end it all comes down to planning.  If you fail to plan you are planning to fail.

Good luck!

The views expressed are not necessarily those of Cambridge and should not be construed as an offer to buy or sell any security.

Jim Heisler, CFP®, CDFA™, CASL™ Family Wealth Services, LLC 8725 Frankford Avenue Philadelphia, PA 19136 215-332-4968

Jim Heisler is a Certified Financial Planner with Family Wealth Services in Holmesburg. You can read all his Financial Perspective columns here.

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