Financial Planning for Women: 5 Unique Differences

When considering the title of this article, your first thought might be “investing is investing”.  However true that may be, it is also important to consider unique differences for women investors when developing financial strategies.  In the next decade it is believed that an estimated $30 trillion in financial assets could be in the hands of women. In our current environment of shifting wealth and global transformation, the time is right to plan for the future for such an important aspect of our population and economy:  women.

Life events for women can affect their financial position and resulting investment strategy.  The purpose of this article is to identify key differentiators when financial planning for women and provide a framework for developing a comprehensive financial plan.  While many women choose to get married in favor of a traditional family structure, others might choose to chart their own course.  A woman’s right to choose her path impacts her financial future.  By preparing for the future, women can be better equipped to handle what lies ahead. 

Whether you are a woman or are genuinely interested in understanding personal finance from a woman’s perspective, these 5 differences in financial planning for women will clue you in on necessary considerations. 

Wage and employment gap

Depending on her particular situation, a woman may earn 55% to 90% of what men earn in the same type of employment. While the thought of a competitive disadvantage based on gender is cringeworthy, it has historically been harder for a woman to move up the corporate ladder than a man.  As a result, women have had fewer financial resources on her own than men of their same qualifications and track record.

Aside from the obvious, why does this matter? Less income overall means less availability to store away for the future. Women are known to live longer than men, so be aware that as a woman you will likely need to save more and plan for a longer period of time in order to maintain the same standard of living in retirement years. 

Men and women are equally entitled to ask questions related to their compensation and benefits packages.  The answers to all of these questions will impact a woman’s choice.  How much to contribute to an employer plan and how much to accumulate individually needs to be mapped out carefully, as it is imperative that personally held assets are harmonized with assets held in employer plans.  A qualified and empathetic financial advisor can help a woman navigate these choices. 

You can also scout companies that are committed to equal pay. Companies like Pinterest and American Airlines have signed the White House Equal Pay Pledge to effectively close the gender wage gap and reduce unconscious bias and structural barriers. 

Outliving a partner

Outliving a partner can be devastating on its own, but the financial impact can further devastate a woman who survives her spouse. When considering financial planning for women, income, expenses, as well as assets and liabilities need to be understood far in advance. It is important for you and your spouse to have open and honest communication around your financial situation, even having monthly financial nights to create a healthy financial habit around your personal wealth. 

This is also a great time to lean on a trusted financial advisor who can prepare you with the right questions to ask, like what provision has been made for the surviving spouse and what would be the financial implications if surviving the breadwinner? 

A financial advisor can draw up holistic plans for multiple scenarios.  For example, either spouse could survive the other and an asset depletion analysis can be conducted in each of those scenarios.  Alternatively, a plan needs to be considered in the event both spouses pass away together.  It is also important to review insurance policies and estate planning documents regularly or as life events happen. Beneficiary designations should also be clearly outlined and understood to avoid family conflict or estate litigation in the future.

Remember to keep a record of login information and passwords, along with other important documentation.  Consider also if there is enough cash to fund the survivor’s immediate needs in the short run while planning for the long run.  Cash flows in estate settlement processes is an important factor to consider as money can be tied up quickly.  Remember to consider all expenses you currently pay for, like child care, groceries, and mortgage payments, and funeral expenses, as well. 

Becoming a primary caregiver for a loved one

Research shows the majority of primary caregivers for aging loved ones are women and it is often assumed by the family that women will step into this role. Becoming the primary caregiver for a partner or loved one is challenging on every level of a woman’s being.  The physical, mental, emotional, and financial demands are great and it is necessary to evaluate alternatives with regard to providing full time care.  

Beyond exploring the emotional and mental toll of caregiving, it’s imperative to weigh the financial impact. Time away from work – whether paid or unpaid – can affect your income, performance, and other benefits. You can likely anticipate impromptu care visits that will take you away from your standard work hours; will your employer give you the grace and flexibility needed to handle this undertaking? 

Before committing to a role as caregiver, you may want to explore a cost-benefit analysis of full-time medical support or aging services provider that can assist in ways you may not be fully prepared for. Consider your financial impact, including available vacation days, sick time, and other monetary perks that you’re used to and how those may change in the future. 

If the answer is “yes” and putting your career on hold is ultimately the best and most sound choice for the health and well-being of your loved one, there are things to consider before making a final decision.  Considerations such as time in the workforce, impact on social security benefits, and retirement savings must be evaluated.  A woman’s choice to take a leave from work is her decision and input from a qualified professional can help guide her choices. 

Divorce and blended families

The good news is divorce rates in the US are down overall.  The bad news is that women ages 55-64 years old have experienced triple the divorce rate since 1990.  The statistics are worse for women 65 or over.  As women age, they are statistically more vulnerable to divorce.  At the same time, they are statistically more likely than men to suffer financial loss as a result of ending a relationship.  This emphasizes the need for qualified and comprehensive financial consulting advice with regard to planning for a divorced woman’s future. 

Negotiations can be relatively simple in a community property state where the numbers are boiled down to calculations.  However, stress testing can be done while considering various scenarios.  There are also factors that should be considered, including insurance coverage, division of assets, and care for minor children or a disabled adult child (DAC).  DAC consumers receive child support beyond the age of 18 and they have significant care management and medical needs for the future.

In situations of remarriage and blended families, the financial picture becomes even more muddled.  There can be entitlements and disagreements among beneficiaries, which could be quite costly to the estate in time and legal fees.  A qualified financial advisor can be helpful; however, there are also other unbiased third parties who act as fiduciaries who can step into the roles of trustee versus family members who might not agree on matters of an estate. 

Divorce and remarriage are highly complex situations that impact multiple individuals financially.  Estate planning protocols can help protect a woman’s assets while she provides for her beneficiaries.  The advice of a qualified legal estate planning professional is highly recommended. 

Playing safe with your investments

79% of female investors say they are confident that they’re on track with their retirement savings, according to CNBC. If you fall in the 21% that are iffy about your financial future, there are solid ways to build your confidence when it comes to investing. 

Research suggests women trade less than men and that men tend to be overconfident when managing their own money without an advisor.  Higher turnover can cause an erosion of investment returns.  Rather than being overly conservative, a woman might also consider the appropriate level of risk.  Thanks to compounded earnings, a moderate investor might have a greater end result than a conservative investor who is not willing to tolerate risk.  A financial advisor can help you consider the appropriate level of risk tolerance based on multiple factors.

Don’t sit on the sidelines. Investing can help pave the way for a more fulfilling retirement and leave you feeling more confident in your financial future. How can you get started on the road to financial freedom? Even a small start is better than not starting at all.  Employer-provided 401(k) plans allow for incremental amounts of savings over time and personal retirement accounts are available to investors of any age with any number of resources.  Also, many mutual fund companies allow for rights of accumulation over time that can add up in the long run.  Financial advisors can explain the different asset accumulation methods that are available to achieve long-term goals and objectives. 

Regardless of your employment or financial situation, it is important to get started with a professional who can help you prioritize goals and develop strategies that are aligned with your hopes and dreams for the future. Financial planning for women looks different under a microscope. Regardless of your age, marital status, or employment status, it is important to consider these factors when evaluating or beginning your financial strategy. 

This blog is general communication being provided for informational purposes only. This information is in no way a solicitation or offer to sell securities or investment advisory services. It is educational in nature and not to be taken as advice or a recommendation for any specific investment product or investment strategy. This does not contain sufficient information to support an investment decision. Any investment or investment strategy mentioned may not be suitable for all investors or in their best interest. Statistical information, quotes, charts, references to articles or any other quoted statement or statements regarding market or other financial information is obtained from sources which we believe reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. All rights are reserved. No part of this blog including text, graphics, et al, may be reproduced or copied in any format, electronic, print, et al, without written consent from Prudent Investors. Prudent Investors does not provide legal or tax advice. Please be advised to consult with your investment advisor, attorney or tax professional before making any investment decisions.