If longevity is a race, then women are the winners: Women outlive men (Females 80.2 years and males 74.5 years); wives live 8-10 years longer than their husbands if they’re married at the same age; and over 75% of women are eventually widowed.
As a result, women must take hold of their financial futures.
The unexpected death of a husband or a recent divorce may mean that a woman is suddenly making all financial decisions. In your case, you may have been doing this all along. But if you haven’t, the unanticipated responsibility can be overwhelming.
In addition, the consequences of poor planning can be devastating. According to one study, a year after the death of a spouse, 80% of life insurance proceeds will be depleted—a lifetime building a nest egg could disappear within a matter of months.
Following are the top 10 financial challenges that women, whether married or single, may face with suggestions and solutions:
1. Putting the needs of others ahead of your own. A woman will often fund her child’s education before her own retirement, or she’ll loan money to relatives that may never be repaid. Solution: Pay yourself first. If you’ve ever flown, you’ve heard the flight attendant remind you to put the life vest and oxygen mask on yourself first, even before you help family members.
2. Spending money to compensate for emotional needs. Suggestion: Observe your behavior. Then create ways to get through difficult times that don’t require spending money.
3. Deciding whether to keep the mortgage or pay it off. Many advisors believe that if you’re over 50 and plan to stay in your home then you should pay off the mortgage. It is important to be aware that women are often less comfortable with loans than men. As a result, they may decide to pay off the loan even if it’s not in their best interest. Suggestion: How you develop your plan depends on the following five factors: your tax bracket, the size of your portfolio relative to the size of your loan, your projected cash flow, the liquidity of your assets, and what decision will be best for your situation.
4. Living in a home that is too large or expensive. Many women have a strong nesting instinct. As a result, women often place great importance on remaining in their homes. But sometimes there are better options. Suggestion: Similar to point 3, evaluate the five factors, and decide what is best for you.
5. Having an outdated or non-existent estate plan. Considering mortality is never easy. Suggestion: I tell my clients that one of the best gifts that they can provide loved ones is to have their finances in order after their death. Preparation means your estate can be settled more quickly with less cost and hopefully reduce some of the emotional burden on your heirs. It can also help relatives avoid having to seek out court appointed guardianship, which can add more cost and even emotional trauma. Finally, it is always important to keep family members informed of financial decisions, the location of assets and estate planning documents, and make sure you’ve determined who will control asset matters should you become incapacitated.
6. Having an investment plan that doesn’t focus on your individual needs. Does your investment program reflect your income, growth, tax bracket, and estate? Suggestion: If you’re fortunate enough to have more income than you need, consider income deferral and gifting programs. If your savings falls below the income you require, it may be time to review your expenditures and investment allocations.
7. Being too aggressive or too conservative with your investments. Solution: Determine whether your investment plan addresses your income needs and your risk tolerance. Seek objective input.
8. Holding investments too long. A common problem I see when meeting with clients is an attachment to their investments and an aversion to change. Solution: Part of the financial planning process involves creating investment benchmarks. It is a good idea to review and evaluate these with your advisor on a regular basis and make adjustments as necessary.
9. Seeking financial advice from someone other than an advisor who is certified in financial planning. Solution: Review an advisor’s experience and background, and request references.
10. Withdrawing too much or too little from a retirement plan. Suggestion: Deciding whether to take out more or less requires an objective outlook. Base your withdrawal amount on your tax bracket and your cash flow needs both this year and in the future.
At some point, 9 out of 10 women will be solely responsible for managing their finances. When divorce, death, or any of life’s surprises come your way, having a solid financial IQ will boost your self-confidence.
This information is not considered a recommendation to buy or sell any investment.