A MAN IS NOT A FINANCIAL PLAN

A MAN IS NOT A FINANCIAL PLAN -  Branford Chamber of Commerce Women in Business presentation

September 2, 2009

 

Maria Storm, Financial Advisor

Raymond James Financial Services

144 North Main Street, Branford, CT  06405

(203) 488-8384

 

The title of this talk, “A Man is Not a Financial Plan,” suggests I will be talking essentially about the pitfalls of becoming a gold digger and I am sure I could fill my time with reasons why marrying for money is not such a good idea.  But that is not really what I want to talk about today.  My real intention instead is simply to impress upon you the importance of understanding and taking responsibility for your own long term financial well-being and to provide you with some steps to start or enhance the process of planning for your retirement years.

 

Many of the women I talk to have myriad reasons why they have not yet thought systematically about their retirement.  Some say:

 

• I know I should be thinking about retirement but I’m just too busy with my business; or
• My husband takes care of our personal finances.  If  I start asking questions, we’ll surely end up fighting; or
• It’s too complicated.  I don’t know where to begin; or most often,
• I know it’s important.  I’ll do something about it next week, I promise.

 

However, once you realize that 80% to 90% of all women will be solely responsible for their finances at some point in their lives,⁽¹⁾ all those excuses seem just that, excuses.

 

Planning for your financial future is especially important for us because women face external obstacles — largely gender based and beyond our control — that work against accumulating wealth.  Let me share some compelling statistics to see the impact of these obstacles.

 

First there is the Earnings Gap.

 

Whatever you attribute the gender earnings gap to — discrimination, different work patterns and priorities for women, choice of jobs — the fact remains that women still earn less than men.

 

• As of August 2008, the real median earnings of men age 15 and older who worked full-time year round was $45,113.  Women with similar work patterns earned $35,102.⁽²⁾
• The difference in earnings between genders was largest between ages 55 to 64 — generally peak earning years — with women earning about 73% as much as men.⁽³⁾

 

Then there are work patterns.

 

• Nearly 25% of all female wage earners in 2007 worked part time, compared with 10% of men, which decreases no only wages but Social Security benefits as well.⁽⁴⁾
• Many employed women act as caregivers for children on one end of the age spectrum and for elderly parents or other relatives on the other end. In fact, women are likely to spend an average of 12 years out of the workforce to meet their caregiver responsibilities. ⁽⁵⁾

 

Lower wages and interrupted work patterns contribute to Social Security benefits gap.

 

• Women’s median Social Security income is 70% of men’s ⁽⁶⁾; however,
• Social Security is a major income source for 50% of retired women, while 38% of men rely on it as a major source. ⁽⁷⁾

 

Most importantly, those same factors contribute to creating the retirement savings gap.

 

• 25% of women have neither retirement nor other savings, compared with 18% of men.⁽⁸⁾  And of those of us baby boomer women who do save, 58% have less than $10,000 saved for retirement.⁽⁹⁾
• Gender differences in employment patterns and wages result in lower overall retirement savings for women compared to men.  According to one study done in July of 2008, women’s average 401(k) balance was $56,320, almost $47,000 less than men’s.⁽¹⁰⁾

 

In addition to the economic chasm created by the gaps I’ve just outlined, demographic trends undermine women’s wealth accumulation.  For women, marital status goes hand in hand with economic status and stability.

 

More specifically, demographic statistics tell us:

 

• The annual number of marriages in the U.S. per 1,000 adult women declined nearly 50% from 1970 to 2005.⁽¹¹⁾
• ^•          The divorce rate in the U.S. has nearly doubled since 1960 — the lifetime probability of separation or divorce is between 40% and 50% for the average couple marrying for the first time.⁽¹²⁾
• And if you are married and get divorced or your husband dies, your total annual expenditures will be reduced by just 20% on average because you will still to have to pay for on-going fixed expenses such as a mortgage, utilities, etc. ⁽¹³⁾

 

 

 

Finally we need to worry about the fact that women typically live longer than men.

 

• Women who turned 65 in 2006 can expect to live an average of 20 more years, compared with 17.1 more years for men; ⁽¹⁴⁾ 
• An estimated seven out of 10 women will outlive their husbands. ⁽¹⁵⁾

 

Let’s distill all of these statistics into one simple addition problem:

 

Lower lifetime earnings + lower Social Security earnings + lower retirement savings + probable singlehood = the very real risk of outliving your retirement savings.

 

So let’s talk about some of the ways you can start to address these challenges.

 

Taking charge starts with three key steps:

• Get organized with an orderly system for managing your finances;
• Create a savings plan to help you prepare for a successful retirement; and
• Educate yourself about the basics of creating a reasonable financial plan.

 

First, get organized:

 

Know where your money is and exactly what you have in terms of total assets.  Often, people have assets in several different accounts, sometimes with several different advisors.   Before you can make a proper investment plan, you need to know what the whole elephant looks like.  If you have a trunk here and a big floppy ear there but don’t have the schematic for the entire elephant, you may end up with a very strange looking animal.  More importantly, you may end up with an animal that can’t achieve the tasks you need it to accomplish.

 

Then, design a monthly savings plan.

 

The first thing to do is to know where your money goes.  Start by examining your spending habits.  One way is to write down every purchase – yes, even that 50-cent candy bar – for a set period of time.  Then fill out the budget worksheets I have available for you.

 

Take a good hard look at where your money is going.  You’ll probably find lots of little indulgences that add up over time.  If, for instance, you now stop by Starbucks every day for a latte but could cut that back to 3 times a week, you could save almost $16,000 over the next 15 years.  If you are spending roughly $2500 per year on clothes, shoes etc. and could cut that by just $20/week, you could save close to $35,000 in 15 years and if you go out for lunch every day now but could brown bag it instead 3 days a week, you could save another $52,000 over the next 15 years. ⁽¹⁶⁾  Those three adjustments could total over $100,000 in 15 years before you even factor in compounding!

 

I know these are essentially meaningless numbers because we all have different habits, but you get the idea.  Just $10 to $20 a week can add up, especially if you start young. Were you to put $20 a week into an investment with an 8% growth rate from age 40 to age 65, you could end up with a nest egg of over $80,000.  Start at age 25, and your nest egg could grow to just over $285,000!  Of course, these are hypothetical examples and do not reflect the performance of any specific investment. ⁽¹⁷⁾  What’s most important is that you build a habit of saving and you remain very disciplined about actually saving the extra money you set aside, not just spending it on something else that seems important at the time.

 

Then, find out what workplace retirement plan is available to you and contribute as much you can. It’s an easy way to save because your contributions are deducted directly from your pay.  Not only will you be building your proverbial nest egg, you’ll get some short-term benefits, as well. Contributions to a qualified retirement plan, like a 401(k), reduce your taxable income up to a certain amount.  In addition, many employers will match their employees’ contributions up to a certain percentage—increasing the amount that has the potential to grow for retirement.  And if you’re a business owner, set up a plan for your company.  There are multiple options for setting up a plan that suits your needs.

 

Most employer-sponsored plans allow you to choose from several investment options.  If you have many years to invest or you’re trying to make up for lost time, give special consideration to growth-oriented investments. Historically, stocks have outperformed bonds and short-term instruments over time, although past performance is no guarantee of future results.  However, along with potentially higher returns, growth stocks carry more risk than less volatile investments. 

 

Finally, you need to make it your mission to learn about investing.  Women represent 47% – nearly half – of all investors and by next year, women will control 60% of wealth in the United States.⁽¹⁸⁾  Several studies of investment behavior have suggested that women often are more successful investors than men.  Compared to men, women investors generally demonstrate more patience with long-term goals; less day-to-day trading activity; greater adherence to plans; and more reliance on professional advice.

 

These very qualities can create a formula for investment success.   Start by focusing on the fundamentals. Learn how inflation, longevity, tax risk, market volatility, and the unpredictability of financial support systems including Social Security can affect your

investment strategy.   If you can, work with a financial planner to determine how important concepts such as time horizon, risk tolerance and diversification affect your retirement portfolio.

 

Financial illiteracy is a choice — a bad choice too many women make to their financial detriment. The more you know about money and investing, the greater the control you have over your present and future.  It’s the only way to help yourself overcome the obstacles to wealth creation that women face.

 

 

Footnotes

 

1) The Retirement Journal, Women and Retirement, January 2008

2)  Institute for Women’s Policy Research, August 2008

3)  U.S. Bureau of Labor Statistics, Highlights of Women’s Earnings in 2007, October 2008

4)  Ibid.

5)  Social Security Administration, “Women and Social Security” fact sheet, cited in “Women and Caregiving: Facts and Figures,” Family Caregiver Alliance.

6) U.S. Government Accountability Office, “Women Face Challenges in Ensuring Financial Security in Retirement,” October 2007

7) Institute for Women’s Policy Research, “Why Americans Worry About Retirement Security, and Why Women Worry More Than Men,” 2007

8) EBRI, Fast Facts, May 6, 2008

9) www.awomansworth.net, copyright 2007 – 2009, Operation “Girl Talk” Talking Together for Financial Freedom

10) Hewitt Research Shows Women Much Less Prepared to Retire Than Men, Reuters, July 2008

11) Rutgers University, The National Marriage Project, The Status of Our Unions, 2007

12) Ibid.

13) Women’s Institute for a Secure Retirement, May 2006

14) U.S. Department of Health and Human Services, Trends in Health and Aging, 2004

15) Women’s Institute for a Secure Retirement, 2006

16) Latte example assumes the savings of $4.50 per latte, twice per week ($9.00).  Lunch example assumes the savings of $20.00 per week

17) The investment return and principal value of an investment in a mutual fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their actual cost.

18) Pittsburgh Post-Gazette, 2006; FA magazine, August 2008

 For information about the Branford Chamber’s Women in Business Committee call 203-488-5500 or e-mail info@branfordct.com