At a recent educational event, I was pleased to moderate a conversation about women’s financial wellness with two seasoned industry professionals, Christine Ripic, regional vice president at Prudential, and Gigi Verrey, vice president at Alera Group Wealth Services. Below are my take-aways about the financial challenges women face and the steps they can take to successfully navigate to – and through – retirement.
Challenges Women Face - Christine Ripic
Compared with men, women have longer life expectancies, less earning power and, quite often, greater caretaking burdens. “This combination can feel overwhelming and make financial success seem out of reach. But with sound planning, saving and investing – it becomes easier to take control of your financial life,” said Ripic.
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On average, women earn 22% less income than men.1 They also tend to have fewer years in the workforce. A woman may take time off to care for young children and then retire earlier, to coincide with the retirement age of an older spouse. Less income over the course of a lifetime restricts a woman’s ability to accumulate retirement savings.
COVID-Related Income Loss
Many of the sectors hardest hit by the pandemic closures were dominated by women, who lost jobs or income or both. In April 2020, the women’s unemployment rate reached 16.2%. It was the first time since the Department of Labor has been calculating that measure that it was over double digits.2 Some women turned to gig work, where income is lower and less predictable.
Even before COVID, many women had been juggling care of both children and elderly parents. The pandemic exacerbated the problem, leading 40% of mothers (vs. 28% of fathers) to reduce work hours and 25% of mothers (vs 10% of fathers) to quit their jobs to provide care for a family member.3
Greater Healthcare Costs
One of the downsides of a longer life is that a woman will often face higher healthcare costs later in life. Wives often bear the burden of caring for older husbands, and as they age they are less and less likely to have a spouse who can take care of them. That’s one reason that 58% of women (but only 47% of men) will need long-term care after age 65, and two out of three people living in nursing homes are women.4,5 Many women end up shouldering those costs alone, which can range from $5,000 to $8,000 a month.
Low Investing Confidence
Studies have shown that women investors tend to take a longer-term approach, with less frequent trades and more diversified portfolios. As a result, their investment performance tends to be better (by an average of .4% annually6) than men. Yet, far fewer women than men own investments outside of a 401(k). “The difference seems to come down to women’s relative lack of confidence in their own abilities to affect outcomes,” explained Ripic. One survey asked men and women to identify the factors that would contribute to the growth of their assets. A significantly larger percentage of men (36%, vs. 29% of women) correctly gave more weight to how they invest, while more women than men (43% vs. 35%) expected that the way they save would have the biggest impact.
In addition, even though women overwhelmingly control the family finances, they may still sit back and let a male partner drive conversations with their financial advisor. Ripic advises women to lean into these conversations instead, by asking questions and getting clarification on anything you don’t understand.
How To Take Control Of Your Finances - Gigi Verrey
The many current and future challenges women face makes it critical to take care of not only your financial health, but also your physical and emotional health.
Knowledge Is Power
“Fear is powerful but can be overcome through education,” said Verrey. She advises women to read books or listen to podcasts about investing and financial planning. You can also leverage a range of educational tools and resources, such as risk assessments or calculators that are available online or offered as part of your 401(k). Armed with some knowledge about how the financial markets work, you can make investment decisions with an eye to minimizing the risk of not meeting your goals, not trying to avoid short-term volatility. In fact, while a woman’s longer life span can be seen as a challenge, it also generally means a longer time horizon to ride out market ups and downs. “Keep in mind that you don’t stop investing on the day you retire and your assets can continue to grow throughout your retirement years,” said Verrey.
Take Advantage Of Tax-Advantaged Savings
If you’re working and your company offers a retirement savings plan, take full advantage of the tax-advantaged savings. Even if your budget is tight and you can’t max it out, contribute at least the minimum required to capture any employee matching contributions. By the same token, contribute to a health savings account (HSA), if that’s available, to save tax-free for qualified health expenses. If you’re not working, your spouse can fund an individual retirement account (IRA) for you. You may also want to consider purchasing long-term care insurance.
Get Professional Planning Guidance
Work with a financial advisor to create a flexible, long-term financial plan. “Once you have a plan, you’ll feel more in control,” said Verrey. If you don’t already have an advisor you know, like and trust, you might ask peers, friends or family for a recommendation, or look to women’s organizations on social media for a list.
Have Difficult Conversations With Parents
Recognize that you might end up responsible for your parents’ care, including their finances. Verrey recommends speaking with your parents about their finances before they become physically or cognitively impaired. At the same time, start to get their documents in place – their life insurance and long-term care contracts. Have yourself added to their financial accounts and work with a trusted advisor to arrange for power of attorney, so you have the legal authority to act on your parents’ behalf if need be. Acknowledging that this isn’t always easy, Verrey suggests arranging a specific time to discuss finances, rather than trying to do it as part of a casual conversation. If your parents currently work with an advisor, you could invite that person to join a call, so you can introduce yourself and start to become familiar with their financial picture. You could also reach out to other people in your network who may be going through a similar thing. “They may be able to provide suggestions and ideas that have worked, and possibly emotional support as well,” added Verrey.
Just Get Started
It’s never too early to start taking control of your finances, but it’s also never too late. Make a commitment to yourself today to take steps toward a better financial future.
Article By Tina Hohman, Executive Vice President, Alera Wealth Services
1 Source: U.S. Census bureau. https://www.census.gov/library/publications/2020/demo/p60-270.html
2 Source: Washington Post, “Women Have Been Hit Hardest by Job Losses in The Pandemic. And It May Only Get Worse,” May 9, 2020.
3 Source: U.S. Census Bureau, https://www.census.gov/newsroom/stories/2020/equal-pay.html (accessed May 17, 2020).
4 Source: AARP, “Long-Term Support and Services,” March 2017.
5 Source: The Henry J. Kaiser Family Foundation, “Medicaid’s Role in Nursing Home Care,” June 2017.
6 Source: Fidelity Investments, 2021 Women and Investing Study.