Financial Matters

Financial Planning Challenges For Women Only

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FOR WOMEN: The Good News 

The role of women in our economy is constantly changing as more and more women are becoming entrepreneurs and reaching the top ranks in corporate America. According to a report by American Express OPEN “The State of Women-Owned Businesses 2017”, more than 11.6 million firms are owned by women, employing nearly 9 million people, and generating $1.7 trillion in sales as of 2017. 

Furthermore, one in five firms with revenue of $1 million or more is woman-owned. This trend will likely continue as the report further states that the number of women-owned businesses is growing 2.5 times faster than the national average and has more than doubled in 20 years.

Mary Barra, chief executive officer of General Motors, Rosalind Brewer, CEO of Sam’s Club, Tricia Griffith, CEO of Progressive, and Oprah Winfrey are powerful women who make money decisions every day that impact their businesses. They do not make these decisions alone but rather with the guidance of a team of advisors. The same principle of building a strong team of advisors is a strategy that all women can follow, even if they do not lead a Fortune 500 company. 

FOR WOMEN: The Not-So-Good News 

Just because a woman is successful at work does not necessarily mean she is confident about her personal money decisions. How do I know? Because I work with a lot of very successful, professional women who come to my office feeling like they do not have their personal financial world under control. Even those who deal with corporate financial decisions every day. They feel some embarrassment until they are reassured that they are not alone. 

Many of the women I meet have accumulated assets and are earning great salaries. Earning money, they know how to do that. What to do with it once it gets into their account, they are not as confident. A big reason is the assumption that they should somehow know what to do with their money? That they alone should be able to navigate the complex world of personal finance. 

OK, NOW WHAT?

Asking for help is the first step. Understanding how money works is not easy but as the saying goes; to fail to plan is to plan to fail. This saying applies to women and men, but the repercussions of not making strategic money decisions can have a greater negative impact on women more than men over the course of a lifetime. 

Why is there a gender difference when it comes to financial planning?  

  1. Women on average live longer than men.

Women and men who turn 65 can now expect to live an average of 21.6 years and 19.3 years longer, respectively according to the U.S. Social Security Administration 2018 mortality tables. Some estimates have the life expectancy gap even larger with women living to age 81.6 and men 76.9. (World Health Organization 2015).

Why is this important for planning? Women will likely need their money to last longer than their male counterparts. Advances in medical technology will possibly extend life expectancy even farther for younger generations. Therefore women need to start their financial plan with the expectation that life expenses could go into their late 90s. Since running out of money would be counted as a huge financial planning fail, realistic expectations of spending in retirement should be discussed early on in planning.

The additional 4-5 years of life for a woman means her retirement income must last these additional years. For example, if she expects to live on $50,000 per year in retirement then her plan must include additional money to support that income stream. Depending on her lifestyle, retirement income needs can be much higher than $50,000, so the amount of income needed for the additional 4-5 year can be substantial. 

  1. Women on average make less money than men.

To further compound the problem of needing their money to last longer, women on average still earn 82 cents for every dollar a man earns. (U.S. BUREAU OF LABOR STATISTICS, Highlights of women’s earnings in 2016, August 2017). The good news is the gap is closing, in 1979 women earned 62 cents for every dollar. 

Why is this important for planning? Consider a simplified example with a woman earning an annual salary of $82,000 while her male counterpart earns $100,000. After 10 years (with no change in income) they have earned $820,000 and $1,000,000, respectively. If they each are saving the same percentage (20% annually) she will have $164,000 to his $200,000. (This example if for illustrative purposes only.  For this example income tax and other deductions from income are not included to keep the math simple.)

For her to “catch up” to his $200,000 at the 10 year mark she would need to either:

  1. Earn more money –make up the $18,000 difference in salaries, perhaps another job for additional income?
  1. Save more money – instead of saving 20% ($16,400) each year she would need to save approximately 24% ($19,680) each year, forcing her to live off of a net $62,320/year versus his $80,000/year. 
  1. Invest – she would need to earn 4.34% (after taxes and fees) each year for 10 years for her money to grow to match a man’s $200,000 in savings. Since that type of return is not typical, it may or may not work out in her favor. The fact that she would most likely need to put money at risk to earn a rate of return just to “catch up” to her male counterparts hardly seems fair.

Despite great advances women are making in the workforce and workplace we still have great financial planning hurdles to overcome. Compared to men, the path to retirement has more obstacles and roadblocks. These challenges can be overcome with strategic planning so it is important for women to take charge of their financial well-being sooner than later and ask for the help of a financial professional. Be like Mary, Rosalind, Tricia and Oprah and build your own team.

Tips for Women (and men too):

First, put aside any feeling of guilt or shame about what happened in your financial past. Everyone has made financial mistakes. 

Second, do not expect yourself to be an expert in all areas of money. Give yourself permission to ask for guidance to navigate the complicated world of personal finance. 

Third, focus on making progress toward your goals. You will not solve all your money problems or amass large sums of money overnight. Focus on making each step a step in the right direction and over time, you should see progress.

 

                                      

Asalyn Coachman is a Registered Representative of and offers Securities through The O.N. Equity Sales Company, Member FINRA/SIPC, 39395 W Twelve Mile Road, Ste. 102 Farmington Hills, MI 48331 (248) 482-3600. Investment Advisory Services offered through O.N. Investment Management Company. Financial Architects, Inc. is not affiliated with The O.N. Equity Sales Company or O.N. Investment Management Company.

Asalyn earned a degree in Economics from Harvard University and a law degree from the State University of New York at Buffalo. She lives in Lake Orion with her husband and two children where she is active in organizations such as the Harvard Club of Eastern Michigan, Lake Orion Schools, and the Baldwin Center of Pontiac, Michigan, where she serves as board president.

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