We all know men and women are different in some fundamental ways. But is this true when it comes to financial planning? In a word, yes.
Everyone wants financial security. Yet women often face financial headwinds that can affect their ability to achieve it. The good news is that women today have never been in a better position to achieve financial security for themselves and their families.
More women than ever are successful professionals, business owners, entrepreneurs and knowledgeable investors. Their economic clout is growing. Their impact on the traditional workplace is still unfolding positively as women earn college and graduate degrees in record numbers and seek to successfully integrate their work and home lives to provide for their families.
Some key differences
On the path to financial security, it’s important for women to understand what they might be up against, financially speaking:
• Women have longer life expectancies. Women live an average of 4.8 years longer than men. A longer life expectancy presents several financial challenges:
• Women are more likely to need some type of long-term care, and may have to face some of their health-care needs alone.
• Married women are likely to outlive their husbands, which means they could have ultimate responsibility for disposition of the marital estate.
• Women generally earn less and have less savings. According to the Bureau of Labor Statistics, within most occupational categories, women who work full time, year-round, earn only 82 percent (on average) of what men earn. This wage gap can significantly impact women’s overall savings, Social Security retirement benefits and pensions.
The dilemma is that while women generally earn less than men, they need those dollars to last longer due to a longer life expectancy. With smaller financial cushions, women are more vulnerable to unexpected economic obstacles, such as a job loss, divorce or single parenthood. And according to U.S. Census Bureau statistics, women are more likely than men to be living in poverty throughout their lives.
Women are more likely to take career breaks for care giving. Women are much more likely than men to take time out of their careers to raise children and/or care for aging parents. Sometimes this is by choice. But by moving in and out of the workforce, women face several significant financial implications:
• Lost income, employer-provided health insurance, retirement benefits and other employee benefits.
• Less savings.
• A potentially lower Social Security retirement benefit.
• Possibly a tougher time finding a job, or a comparable job (in terms of pay and benefits), when reentering the workforce.
In addition to stepping out of the workforce more frequently to care for others, women are more likely to try to balance work and family by working part time, which results in less income, and by requesting flexible work schedules, which can impact their career advancement (and thus the bottom line) if an employer unfairly assumes that women’s care-giving responsibilities will come at the expense of dedication to their jobs.
Women are more likely to be living on their own. Whether through choice, divorce or death of a spouse, more women are living on their own.
Women sometimes are more conservative investors. Whether they’re saving for a home, college, retirement or a trip around the world, women need their money to work hard for them. Sometimes, though, women tend to be more conservative investors than men.
Women need to protect their assets. As women continue to earn money, become the main breadwinners for their families and run their own businesses, it’s vital that they take steps to protect their assets, both personal and business. Without an asset protection plan, a woman’s wealth is vulnerable to taxes, lawsuits, accidents and other financial risks that are part of everyday life.
Take control of your money. Create a budget, manage debt and credit wisely, set and prioritize financial goals, and implement a savings and investment strategy to meet those goals.
Become a knowledgeable investor. Learn basic investing concepts, such as asset classes, risk tolerance, time horizon, diversification, inflation, the role of various financial vehicles like 401(k)s and IRAs, and the role of income, growth and safety investments in a portfolio.
Plan for retirement. Save as much as you can for retirement. Estimate how much money you’ll need in retirement, and how much you can expect from your savings, Social Security, and/or an employer pension. Also, factor the cost of health care (including long-term care) into your retirement planning, and understand the basic rules of Medicare.
Protect your assets. Identify potential risk exposure and implement strategies to reduce that exposure.
Create an estate plan. To ensure that your personal and financial wishes will be carried out in the event of your incapacity or death, consider executing basic estate planning documents, such as a will, trust, durable power of attorney, and health-care proxy.
Women are the key to their own financial futures – it’s critical that women educate themselves about finances and be able to make financial decisions.
BARBARA KENERSON is First Vice President/Investments at Janney Montgomery Scott LLC and can be reached at BarbaraKenerson.com