5 Life Stages of Financial Planning for Women Investors

August 10, 2022

Today we are privileged to welcome Kris Maksimovich, AIF®, CRPC®, CRC®, President at Global Wealth Advisors as a guest contributor to the Summit Wealth Group blog. Kris is joining us to talk about women investors and the different life stages of financial planning specific to women. Kris, thanks for joining us; take it away!

5 LIFE STAGES OF FINANCIAL PLANNING FOR WOMEN INVESTORS

Women encounter a variety of unique circumstances which impact their ability to save for retirement. Specifically, career pauses for life changes and lower pay than male counterparts make saving for retirement a challenge. Whether single, married, or widowed, the key to financial planning for women investors is to prepare at every stage of life.

WHAT STRATEGIES DO WOMEN USE TO BECOME FINANCIALLY INDEPENDENT?

Many factors remain constant whether building a financial plan for men or women. Chiefly inflation, income tax, medical care, projected income needs, social security, and return on investment are top of mind. Women often hold an added dimension of caretaker. Since these roles fluctuate throughout a lifetime, financial planning for women demands strategies that follow five distinct stages of life.

Initiation Stage (Ages 18-30)

Financial planning for women investors at this stage means initiating a plan and tweaking it as your life evolves. According to a 2017 Fidelity Investments survey, only 28 percent of single women have a financial plan in place and 53 percent have a 3–6-month emergency fund to navigate financial challenges. Begin by setting basic estate planning documents in place as you move out of your parent’s house:

Healthcare Power of Attorney. Consider naming a healthcare proxy. Also known as a healthcare power of attorney, this places your healthcare in the hands of someone you trust. The medical POA goes into effect only should you become incapacitated and can be rescinded by you at any time.

Durable Power of Attorney (POA). A POA gives parents or someone you trust the authority to handle financial and legal matters on your behalf. The POA can be helpful for filing taxes and other activities, especially if you are away at college. Again, the instrument can be rescinded by you at any time.

Starting Your Career

A study published by the Stanford Center on Longevity in Financial Security and the Gender Gap found that women are considerably less confident about making major financial decisions than men. Such disparity may also translate into being less involved in important financial decisions like saving for retirement and investing. Build confidence in your financial decision-making with a few basic financial planning strategies:

As you build your career prospects and skillset, your earnings potential should increase as well. Establish your retirement savings plan to gain the benefit of compound growth.
Asset allocation is the process of dividing your assets across a variety of asset classes. When you are younger, you have time on your side when it comes to your investments. Investing early can offer significant benefits. Depending upon your appetite for risk, you can invest in a model weighted with less conservative investments, such as stocks.
Select beneficiaries on your investment, savings, and insurance accounts, you can always modify them as your life changes.
Begin building a credit history and guard your credit score. This can save you substantial money on interest rates for secured and unsecured loans over your lifetime.
Claim ownership of your social security account through the Social Security Administration. With identity theft on the rise, it decreases the likelihood that someone can file for social security benefits in your name. It will also help you keep track of your earnings and projected retirement benefits.
Routinely review a free copy of your credit report from the major credit bureaus.

Getting Married

Changes in marital status may affect beneficiary designations so remember to review them along with your healthcare proxy and POA.
Creating an advanced directive or living will provide a set of instructions for your desired life-sustaining procedures should you become incapacitated.
Review employer-sponsored insurance coverage and understand how any coordinated benefits may work together.
Visit your tax situation by calculating your tax burden using the IRS Withholding Estimator.
Discuss how you will save, stick to a budget, and handle debt as a couple. Merging finances can be tricky, but these four strategies may help:
Merge finances – Establish a joint account to receive all income and pay all expenses.
Share some finances – Keep your finances separate except for one joint account where both contribute equally to cover expenses. This is useful when both earn similar incomes.
Share finances proportionally – Both contribute a percentage of income to a joint account for paying expenses. This is useful if one earns substantially more than the other.
Expense sharing – Both agree on how bills and expenses will be divided and who will pay for them.

Starting a Family

Draft a will to provide for the guardianship of your children. Select a guardian that will distribute care according to your wishes.
Visit your tax situation. You may be eligible for credits including the child tax credit, adoption credit, education tax credit, and childcare credit.
Revisit your employer-sponsored insurance coverage. If you have an HSA or FSA, examine your anticipated healthcare expenses and adjust contributions.
Review the life and disability insurance you receive through your employer to ensure adequate coverage to care for your children. Employer plans are often not sufficient, so you might consider adding coverage.
It’s never too early to think about paying for your child’s education. Establishing a college fund early can help them realize their education dreams.

Focus Stage (Ages 30-45)

You have likely built a financial status including some savings, investments, and emergency funds. Financial planning for women investors at this stage may find you focused on career advancement.

Continue building your emergency fund, which can give you the confidence to make career changes.
Routinely explore job opportunities to confirm whether your current salary is appropriate for your level of experience and skills.
Commit to a savings strategy when it comes to raises and bonuses. Consider increasing your percentage of retirement savings.

Divorce or Separation

Women’s household income commonly drops by 41 percent after divorce, according to a study from the U.S. Government Accountability Office. This is nearly double the size of decline that men experience. Even more troubling for divorced women is that you may still be liable for cosigned loans with a spouse. While a judge may order marital assets and debt split, creditors are not bound by the terms of a divorce decree and are free to pursue payment. If you are headed for divorce court, there are several activities to consider.

Execute new estate planning documents including your will, trust, powers of attorney, health care proxies, and living will.
Review the beneficiary selections for your 401(k), IRA, and bank accounts.
Ensure your federal, state, and local taxes are paid.
Maintain or establish good credit. If you don’t have any, it’s a good idea to apply while you are still married. This could help you qualify for major purchases such as a car or house.
Avoid borrowing from your investments or cashing out your retirement funds. You’ll likely pay more taxes and an early withdrawal penalty while robbing from your future retirement.

Monitor Stage (Ages 45-55)

A 2020 AARP report on caregiving in the U.S. found that 61% of caregivers are female. Financial planning for women investors at this stage may find you in an increased caregiver role. While you may be at your peak earning potential, you may also have high expenses. Ramp up planning and monitor whether you are reaching your goals for retirement.

As you earn more, watch out for the natural tendency to spend more.
Mirror check your desire to save for your children’s college versus caring for yourself in retirement.
Consider dialing up savings, especially taking advantage of the catchup contributions for 401(k)s, IRAs, and HSAs once you turn age 50.
As you pay off large assets such as a house, consider funding a living trust. A trust will enable you to pass your assets on to loved ones without probate.
Investigate long-term care insurance, especially while you are still in reasonably good health.

Sandwich Generation

Some women investors find themselves sandwiched between still caring for children while also helping care for aging parents. Initiating a discussion with your parents can reduce anxiety for all of you.

Sit down with your parents and go over their wills and legal documents, investment accounts, banks, and insurance policies. Also, learn where to locate deeds, titles, and safe deposit boxes or the code to a house safe.

Discuss their end-of-life wishes. Learn who they will appoint as their health care representative and where they would like to live.

Assessment Stage (Ages 55-62)

Assessing your progress is key to financial planning for women investors at this stage of their life. While your personal expenses may be declining, other costs such as health-related expenses may increase. Analyze what your retirement might look like by putting it to paper.

Estimate your retirement income. Understand your retirement benefits and full vesting with your employer.
Look over your social security benefits to determine if there will be a shortfall in your retirement savings.
If you’re single and have no children, revisit to whom you will leave your estate. Dying intestate means your assets are generally distributed to a parent or sibling. Assets are distributed to other family members if you are not survived by parents and siblings.
Consider whether you will downsize and where you plan to live.
If you divorce at this age, the financial ramifications could be even more severe. Consider enlisting the help of a professional advisor who can help you optimize your savings and income tax strategies.
As you near retirement, your asset mix should be adjusted since your time horizon is shorter. At this stage, you are less likely to tolerate the risk and volatility associated with stocks. You might consider shifting your investment portfolio to reflect income-producing assets such as bonds.

Death of a Spouse

Women often find themselves unprepared for this eventuality. In that same 2017 Fidelity Investments survey, only 56 percent of widows have a financial plan in place, 75 percent have a 3–6-month emergency fund, and only 81 percent have a will.

Review your will/trust beneficiaries.
Check with the Social Security Administration for survivor benefits. Your deceased spouse must have been “fully insured” under social security regulations at the time of passing. You must have been married at least nine months prior to your spouse’s death and be at least 60 years old. If you are younger than 60, you must be caring for a child younger than 16 or be disabled and receiving benefits.

Retirement Stage (Ages 62+)

With the careful planning you have done throughout your life, you should look to enter retirement with confidence.

When you retire, a reshuffle of your asset allocations might be in order. Consider opting for investments that guard against volatility by providing income to pay for your expenses while also providing growth potential to hedge against inflation.
Determine the timing for claiming your social security benefit. If you have fewer earnings than a spouse, you may be eligible to receive half of their benefits if your marriage lasted at least 10 years and you haven’t remarried. You may also choose to continue working, so you can delay claiming social security and increase the benefit. The rules are complex and warrant a critical assessment of your financial situation.
As you near age 65 and are ready to sign up for Medicare and supplements, be warned your earnings may play a role in the cost of these retirement benefits.
Organize your financial records. Give a trusted family member or your financial advisor a list of their whereabouts. Supply a list of phone numbers for those who should be alerted in case of an emergency.
Create a Letter of Intent (LOI) to express your end-of-life wishes. While not legally binding, this instrument offers loved ones important details. Outline where to locate critical information, and how certain keepsakes and assets should be dispensed to others.
Required minimum distributions start by April 1^st following the year you turn 70 ½. Working with a professional financial advisor can help you maximize their use.

FINANCIAL PLANNING FOR WOMEN INVESTORS

Many women find themselves playing catchup as they near retirement. Solidifying your current financial situation, maximizing retirement benefits, and planning your estate can bring a level of confidence about entering this stage of life. By following a few financial strategies during several distinct stages of your life, you can retire on your terms. If you need help deciding on optimal financial planning and investment strategies throughout your lifetime, do not hesitate to contact us.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer. Third-party links are provided to you as a courtesy and are for informational purposes only. We make no representation as to the completeness or accuracy of information provided on these websites.

Authored by Kris Maksimovich, AIF®, CRPC®, CRC®, President at Global Wealth Advisors.