FINANCIAL PLANNING FOR WOMEN
Neal A. Deutsch, CFP®
Published in Rivertown Journal, November 2006
 Women are different from men. No…really! Other than the obvious, financial
planning for women is very different than financial planning for men. As
a group women earn less, bringing in only 73%* as much as men over the course
of their lives whether they take time off to raise a family, inequities in
the workplace, or a propensity to choose lower paying professions. According
to the last U.S. Census Bureau statistic in this area, the median income
for
women in 2000 was $27,355 compared with $37,339 for a man. That means that
the average working woman is starting with a handicap of about $10,000 a
year, or $400,000 plus appreciation over a 40 year career.
Women take time off to have and raise children, which often removes them from
the workplace for 5 to 10 years. In this time they miss out on earned wages,
promotions, technology advances, and most importantly, lost years of contributions
to their retirement funding. Let's assume a 25-year-old earning $25,000 per
year takes off five years to start a family. If she were a diligent saver putting
15% into her 401(k) plan, at age 65 with 8% compounded growth without considering
taxes and inflation, she would have sacrificed more than $325,000 plus matching
contributions and growth from her employer- not counting the $125,000 in lost
wages. Additionally, taking off five years may affect the best 5 of 35 years
of earnings to determine her social security benefit at retirement. Additionally,
oftentimes women take time off to care for elderly parents, as the primary
caregiver.
WHAT'S WRONG WITH THIS PICTURE?
In most families the spouse who makes the most money is the one who controls
and makes the investment decisions. In some 15%* of families the wife earns
the highest income. In 26%* of families the spouses earn within a few thousand
dollars of each other. But that means, in 59%* of families the man is the highest
wage earner and is making most of the family financial decisions. Yet, it is
the woman who is likely to live the longest, based on current mortality tables.
Rarely is this fact taken into account when family planning takes place.
Closely related to income tax planning for women is investment planning. Investment
selection and asset allocation involve much more than tax considerations. There
are various questions women should consider. Do investment objectives line
up with financial resources and needs? Is the investment advice they are receiving
objective, reliable and in line with their goals, time horizon and risk tolerance?
Will a trust help with their investment planning? Women who are too busy or
unable to oversee the day-to-day management of their investments should consider
a trust, which may provide the comfort that comes with knowing that a qualified
trustee will properly handle financial affairs in all eventualities.
Retirement planning for women can be different than retirement planning for
men. Women who find themselves suddenly single due to divorce or widowhood
find themselves in a foreign place, often with outdated (or void of) legal
documents, life insurance, and tax assistance. It is crucial to continually
update your legal documents and calculate your retirement planning needs and
goals, as adjustments to contributions may be made in the earlier years allowing
time for the magic of compounding to assist you in achieving your objectives.
Remember, you can never go back to make a retirement or savings or retirement
contribution: it is vital to recalculate your needs as life changes come into
view. It is at this time that an association with trusted advisors that you
can understand and feel comfortable with is paramount to the beginning or continuation
of your long-term financial plan.
*According to the US Census Bureau
Neal A. Deutsch is a Certified Financial Planner™, Registered
Securities Principal and President of Chestnut Investment Group in Suffern,
NY, helping people with financial planning since 1984. Please feel free to
call Neal at 845.369.0016 or email him with your questions at neald@chestnutinvestment.com
Feel free to visit his website at www.chestnutinvestment.com
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