Women and Investing

By Elizabeth F. Deutsch, Sr. V.P.

Women are different than men. Yes, it’s true. Other than the obvious, the responsibilities society bestows upon us are vastly different. While no rules are steadfast, for the most part, it is the woman who raises the children, makes many of the day-to-day household decisions, and cares for an aging parent. Studies have shown that in most families, the spouse who makes the most money is the one who controls the investment decisions. In some 15% of families, according to census figures, the wife earns the highest income. In 26%, the spouses earn within a few thousand dollars of each other. But that means that in 59%of families, the man is the highest wage earner and making most of the financial decisions, but based on mortality tables he’s not the one who is likely to live the longest.

Why Women Must Plan Differently Than Men

Women take time away from employment to have children, raise families and increasingly, to care for elderly parents. In a large part, because of the time spent out of the paid work force, they earn less than men. Mortality tables show that women live about 7 years longer than men, and will need these additional assets to sustain their life span. Women in the sub 40 category spend little time planning for retirement as their time is filled with family obligations. Single, widowed and divorced women are the most "at-risk" group for not preparing adequately for retirement. If a 25-year-old woman earning $25,000 a year takes five years off from paid work to raise a child, it will cost her $125,000 in lost wages. Let’s say she is a diligent saver, and had been saving 15% of her earnings into a retirement fund. If she had left that principal and growth in until age 65, she would have earned, at an average annual return of 9%, approximately $500,000. Five years away from work and away from her retirement contributions can be devastating to her future financial security.

Here at Chestnut, we always say that the road from point A to point B is not a straight line–there are a thousand points in between. We call this life. As we all know, life constantly throws us a curve ball. Children, interruptions in wage earning years, caring for parents, etc. are all curve balls. Women tend to have more of these "pitches" thrown at them for the above reasons. This is why it is all so important to diligently plan for your future, and there is never a time when it is too early. If you have a 401(k) or 403(b) plan at work, contribute the maximum allowable, or what you can comfortably afford. Always try to contribute at least as much as your employer will match. If your employer does not have a pension plan, be sure to fund your IRA or Roth IRA annually- for year 2002, you may contribute $3000, and that number will increase in future years. Speak with your planner to see if a deductible or Roth IRA is applicable to you. If you are contributing to an IRA do it monthly or at the beginning of the year. Waiting for the end of the year sometimes makes it harder to get together, and you will have lost the compounding effect of the previous eleven months.

Women tend to have more interruptions in their saving goals that must be accounted and made up for by careful planning. Review your plan often—keep your insurance up to date, and make sure you have a will, power of attorney and living will. Review your goals frequently and adjust accordingly. It’s your future—let’s make it a great one!