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Should Men and Women Have Different Financial Strategies?

Jay Peroni, CFP, author of The “Faith-Based Millionaire”

The reality is most Americans may be underprepared for their financial futures. Taking control of your financial future may be even more important for women than it is for men. Here are four reasons women need to invest and save actively.

1. The Earnings gap – Even today, men tend to earn more than women. In 2008 a survey of retirement savings trends conducted by Hewitt Associates, a global human resources consulting firm, found that the women who worked earned an average of $57,000 annually, compared to $84,000 for men. The average male employee in the study therefore had the chance to defer greater amounts of salary into a company retirement plan, while the average salary of the surveyed female employees sometimes wasn’t high enough to trigger a company match.

2. Time out of the workplace – If a woman relies on a company retirement plan to accumulate retirement savings, taking time away from the workplace to care for children (or family members with special needs) can amount to a financial setback. A male employee may contribute to a 401k plan year after year for 20 to 30 years or more, and his contribution levels may increase along with his salary. If a woman leaves the workplace for a few years (or more), her retirement nest egg still compounds, but the steady salary deferrals to a 401k plan cease. When she retires, she may have less of a nest egg than her male counterpart if she just relies on the company retirement plan as her primary retirement savings vehicle. This is a compelling reason for women to build their own investment portfolios, in addition to participating in employer-sponsored retirement plans.

3. Divorced women may suffer further… Though I’m not an advocate of divorce under most circumstances, it is an unfortunate part of our society. Many women find that a “fair and equal” settlement is not an equitable settlement. When the husband earns much more than the wife, all kinds of decisions ride on the stability of the husband’s salary – the neighborhood the couple or family can afford, what school the kids attend, and so on. When that big salary is gone, the woman faces a reduced lifestyle, and may dip into her savings to maintain financial equilibrium.

More importantly, she may not have the earnings potential her husband has. Things can get particularly tough when the wife is a key employee at a business or professional practice her husband started before the marriage. After a divorce, the husband may retain the business and the bulk of the business assets, regardless of the integral role the wife played in growing and running the company. Will she want to work alongside her ex-husband? Uh-uh. So the stable job she had is a memory, and a career change and a move may be next.

This is why financial planning is so important for many women. Women need strategies after a divorce, help with investment portfolios and financial plan personalized for their new needs and goals. This will better enable them to (re)build wealth.

4. Women outlive men – The Labor Department estimates that almost 90% of women will outlive their husbands and spend a portion of their retirements managing their ownfinances. A woman who retires alone may face a very long retirement: if you leave work at 62, it may last 20 years or longer, with only about 30% of your income coming from Social Security.

The Hewitt Associates study estimated that women’s retirements will average 22 years, compared to 19 years for men. Factoring in projected increases in healthcare costs, it concluded that women need to save 2% more than men annually over 30 years to maintain their standard of living when they retire. If a woman earning $57,000 contributes 4% to her company retirement plan annually over 30 years instead of 2% (that’s $95 more a month), the study estimates that she’ll have an extra $81,000 at her retirement date. . .

The take away from this article is “women need to be concerned and involved in their financial wellbeing!” Please let me know how I can help you.

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