Though men and women have a lot of the same priorities, especially when it comes to investing, women must extra diligent when it comes to their financial situations as they age. This is because they outlive their male counterparts by an average of 5.2 years, the divorce rate is approaching 50 percent and approximately 10 million women are single mothers in America. It can be a scary thought to face one’s golden years alone, but what can be even scarier is not facing the fact that a majority of women will be the sole controller of the family nest egg – and the sole person responsible for bills, taxes and health insurance. This is why Edward Jones held a seminar on Feb. 26 in Hermosa Beach, CA. Titled “A Woman’s Guide to Money Matters,” financial advisor Nicholas M. Paneno outlined a few strategies women (and men) can employ to secure their financial stability, plan for retirement and even assist their grandkids with college tuition.
If the current downturn has taught us anything it’s that we can’t put all our eggs in one basket. This is an especially important lesson for women whose husbands make the most, if not all, of the investment decisions. Many couples were riding high on the stock market just a little more than two years ago when the Dow Jones Industrial Average hit an all-time high of 11,960.51. Today that’s clearly a different story, and though many remain steadfast in thinking that they’ll make all their money back once the market rebounds, a woman who is facing retirement in the next 10 or 15 years should look at other investment opportunities. “Real estate, cash, stocks, bonds, commodities – yes, you need a small percentage of commodities – can broaden your investment opportunities,” Paneno said.
2. Think Long-Term
The current state of the investment landscape can make anyone want to pull all their money and cut their losses. Even in economically stable times, many women who take control of their finances for the first time can get intimidated by an investment portfolio that they previously had little to do with. They may also feel overwhelmed by the prospect of facing life – and all of its financial responsibilities – alone. This leads many to believe that they would be better off taking that money out and using it to pay current expenses. Though every family’s financial situation is different, most experts generally advise against abruptly pulling out of an investment because it has gone down in value. In fact, walking away from a current investment in a down market is essentially locking in your losses because you will have no chance to recoup that money once the market rebounds. Unless one is absolutely desperate, it’s not a good idea to end a long-term investment for the short-term gain of a little extra cash.
3. Invest Systematically
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This strategy applies to a lot of things, not just literal investments. “It means paying yourself first and investing steadily in your 401k if you have one,” Paneno said. For many women, especially the older generations, investing in one’s self is a foreign idea, as family, home and career obligations usually trumped their own needs. This is a crucial strategy, however, to ensuring financial stability. Putting even just a little money into a savings account and 401k every month can really add up. Though many women may say that this is difficult if not impossible to do in the current economy, Paneno noted that this money is the equivalent of brewing your coffee at home instead of going to Starbucks or making your children’s lunches instead of forking over the $2 to $7 per day per child. All those little extras can add up to way more than the $50 or $100 a month that could be set aside.
4. Translate Values into Goals
With so many people recording investment losses of 40 percent to 60 percent, now is as good a time as any to take stock of your financial situation and determine what will be important to you in the next few years. These goals can be anything from buying a new home to assisting your grandchildren with their college tuitions. Paneno notes that these goals should be re-evaluated every year to reflect any changes in your financial situation and anytime you experience a major life change, such as the death of a spouse or the birth of a grandchild. Wherever your values lie you want to incorporate them into your monthly budget. Calculate how much you would need for that new home, how much you can realistically set aside every pay period or month toward it and how long it will take you to reach that goal. “By outlining specific goals you can make them measurable, achievable and relevant to your [current financial status],” Paneno said. “This way you can put them into a realistic timeframe.”
5. Prepare for Retirement
Regardless of age, it’s always a good idea to plan for that time down the road. According to Paneno, an individual needs the equivalent of 80 percent of their previous income, pre-tax, to realistically retire. This means planning for retirement early, as the potential for growth drops substantially if a 30-year-old waits until she is 35, 40 or 45 to begin investing regularly in her 401k. Roth IRAs and traditional IRAs are also great for those whose employers don’t offer 401k’s. Though both their own pros and cons, Paneno noted that Roth IRAs grow tax-free and allow for tax-free withdrawals after retirement age is reached. He also noted that tax-free investments may become more popular in the upcoming years because “right now we have a $12-trillion deficit, and chances are we’re gong to have to pay some of that back in taxes.” Aside from the fact that many have seen their retirement accounts depleted in the past few years, Paneno noted that the recommended withdrawal amounts have also decreased. “In 2000, it was six percent [a year],” he said. “Now, four percent is recommended. On top of this, you also have to guard against inflation, which is called the silent killer.” Depending on the rate of inflation, retirees may need to take the equivalent of one percent to three percent of their yearly withdrawal to maintain purchasing power.
6. Stay Current on All Living Essentials
The last thing an aging woman – husband or not – wants to deal with is foreclosure, a major car accident or an unexpected health scare. Though the latter two can’t be avoided, they can be made all the more scary if the victim’s insurance has lapsed. Remember, too, that as we age our bodies don’t bounce back as quickly from the effects of a car accident or illness, making insurance all the more critical. “The number-one rising cost in this country is healthcare,” Paneno said. “And [medical bills] are the number-one thing that causes bankruptcy.” There is one other cost women need to consider aside from insurance, the fees for assisted living facilities. Unless pre-arrangements have already been made with children there is a very good chance that a woman will find herself faced with a monthly fee of $2,000 to $5,000 when she can no longer care for herself or live alone. “There is a one in two chance that women today will need long-term care over the age of 65,” Paneno said. “They can break a bone or develop dementia…and the average length of care needed is three to four years.”
7. Plan for the Future
It’s always important to plan for your own future, but this strategy actually applies to the future of others. One of the biggest mistakes couples make is assuming that their assets will go to their spouses or, upon their deaths, their children, regardless of whether or not they have a will or trust. This is not a bad assumption, however the legal fees and lengthy process involved with assumed beneficiaries can take a major toll on a still-grieving spouse or child. “If you don’t have a will you’re leaving it to the courts to decide who gets your assets,” Paneno said. “So talk with an estate planning attorney and get a will in place so your [beneficiaries] can bypass the costly court proceeding called probate.” Women also need to know that although living trusts can have many benefits, including keeping the division of your assets private (wills are public records) upon your death, a will is typically considered the last word on who gets what. Another important point to keep in mind is that wills, like savings goals, need to be updated after any major event. This includes divorces, deaths, births and falling-outs with loved ones. “If you get divorced and have a 401k that you willed to your then-husband that you forgot about and you all of a sudden pass away that first husband is going to get it all,” Paneno said.
At a time when finances are at such a state of influx it is more important than ever for women to secure their financial future, whether or not that includes a partner. In fact, Paneno estimates that 90 percent of women will be solely financially responsible at some point in their lives. By taking control of their own destinies women can achieve a sense of accomplishment, responsibility and, ultimately, financial freedom. For although no one wants the unexpected to happen, spouses pass, diseases develop, accidents happen and markets crash.