Women are controlling greater amounts of wealth than ever before, but according to the February 2012 Merrill Lynch Affluent Insights Survey, which examines the goals and financial concerns of affluent Americans, 66 percent of affluent women are more concerned than men (54 percent) about their retirement assets lasting throughout their lifetime. Planning and saving for retirement is important for everyone, but there are specific considerations and challenges unique to women.
Not only do women tend to have longer life expectancies than men, they also may have fewer savings than their male counterparts due to a multitude of factors like salary discrepancies. The Government Accountability Office found that women working full time earned a median of $36,900 in 2010, compared to $47,700 for men. It’s critically important to have a financial strategy that takes these challenges into account.Women need to take extra steps to make sure they’re financially prepared for retirement. Greater financial literacy and control let women identify their assets and avoid financial pitfalls. Here are a few tips women (and their families) can consider to ensure they’re on the right track to a more secure financial future.
Create a plan that addresses your needs
Start early. A simple but critical place to start is organizing and ensuring access to your financial and legal documents. Whether it’s a legal deed or your 401(k), keeping your financial accounts updated as circumstances change is a helpful way to stay informed.
Along with strong financial literacy and confidence, it’s important to create a unique plan that addresses your individual needs. To get an understanding of your overall financial picture, first identify your goals. It’s important to set them for both the long term and short term, as you’ll want to keep them aligned with your current situation, both personal and financial. Over time, it helps to meet with a trusted financial adviser. Whether you’re faced with small or dramatic life events, your adviser can work with you to adjust your financial roadmap.
Maximize strategies for a diversified portfolio
Once you have an understanding of your financial picture, take a look at your portfolio allocation. Determine your investment personality, which takes into account your mindset and behavioral tendencies as an investor. Women can be more risk-averse—according to the “Women Want More” study from the Boston Consulting Group, the average woman keeps 20 percent of her assets in a checking account. Evaluating your investment personality can help you see where you can shift assets into more aggressive investments.
Assigning a level of priority, timeline and risk profile for your goals can help you gauge the different levels of risk tolerance you have for achieving each need. For example, a younger parent may accept higher levels of risk for their retirement but take a more conservative approach for more time-sensitive goals such as her child’s college savings. Also, if you anticipate a loss of income from taking time off from work, your portfolio allocation can potentially compensate for the lower contributions to your various accounts.
Bonds can provide a nice way for women to further diversify their portfolio. As many investors have become more disillusioned with the stock market over the last 10 to 12 years, fixed income investments can be strong performers given the long-term trend toward lower interest rates.
Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yields and share price fluctuations due to changes in federal interest rates. When interest rates go up, bond prices typically drop, and vice versa.
Ensure your retirement savings last a lifetime
Often designated the caregivers of their households, women may have lower lifetime savings from entering and exiting the workforce. Compounding the problem, women live five years longer, on average, than men do—requiring their retirement savings stretch that much further. To help your retirement savings last a lifetime, take a close look at your current retirement accounts. Are you maximizing your contributions? If you’re currently working, research your company’s retirement programs to make sure you’re reaping the greatest benefits, especially if it has matching contributions. Or, if your company doesn’t offer such programs, consider setting up a Roth IRA, in which assets have the opportunity to grow tax-free.
For stay-at-home moms, opening a spousal IRA can help build that retirement nest egg. Couples can start by putting a dollar figure on the stay-at-home parent’s contribution to the family’s welfare. Parents should calculate the amount they’d be spending in daycare if they were both working and put that sum away in a separate bank account each month. This, and other savings strategies, can help to fill the savings gap created by taking time out of the workforce.
Plan for the unexpected
From health issues to divorce, factoring in unexpected events should be a priority for everyone, but it’s especially crucial for women whose salary is secondary for the household. Such instances can radically impact their finances and retirement plans. Personally and financially disruptive events such as the death of a spouse can often leave a woman responsible—but unprepared—for handling her family’s finances. Rising health care costs add an additional financial burden that can be stressful as women age. Therefore, it’s important to consider having adequate life and long-term care insurance, which can make a big difference for your financial future.
Planning for your goals or the unexpected isn’t something you have to do alone. Develop an estate plan and identify beneficiaries with your financial adviser, accountant and trusted attorney. Even if you don’t have financial know-how, working with a team to confront potential challenges and choices long before any need arises will help you be much more prepared.
James B. Marchetti is a San Francisco-based SVP and wealth management advisor for Merrill Lynch, Pierce, Fenner & Smith Inc., a registered broker-dealer, Member SIPC, and a wholly owned subsidiary of Bank of America Corp. You can reach him at (415) 955-3860 or james_marchetti@ml.com.
Neither Merrill Lynch nor its financial advisors provide tax, accounting or legal advice. Clients should review any planned financial transactions or arrangements that may have tax, accounting or legal implications with their personal professional advisers.
