Financial Planning for Women: Q&A

Several studies have shown that women are better investors than men, in that they earn higher returns, are less prone to volatile trading and pay less in commissions. You can agree or disagree, but that’s what the data shows. Some men have a difficult time accepting this. Yet, women face several gender-specific financial challenges throughout their lives, including unequal pay, taking time out for family reasons, higher costs for medical care, and a longer life expectancy than that for men. For these reasons, financial planning for women has its unique challenges.

Women investors need access to the best, unbiased information regarding their finances, and at Heritage Capital, we strive to provide that service.

In my more than 30 years as a financial advisor in Connecticut, I have encountered some of the most important questions with which women must contend. (Retirement planning for high net worth individuals can be even more complicated.) If you have a question that is not addressed here or would like to discuss your specific situation in more detail, let’s talk!

It’s never too soon to start planning for the future. Start a conversation with the team at Heritage Capital now.

Q: How Much Should I Invest?

Investing should begin with your retirement plan. The sooner you start putting money into your retirement investments, the more time you’ll have for your money to grow tax-deferred and to recover from any investment mistakes.

In terms of amount, first consider your situation. What are your plans for retirement? What are your financial goals? When did you get started? Retirement planning for high net worth individuals may require higher savings to either maintain a current lifestyle or support lofty plans.

Then consider what options are available to you. For example, does your company offer a 401(k)? If so, try to contribute enough to max out your employer’s matching contributions. If that amount seems like too much, work with a financial advisor to see if you can free up money in other areas so you can take advantage of this “free money” opportunity. In 2021, you can contribute up to $19,500 ($26,000 if 50 or older) to your 401(k).

Remember that the money you contribute to a traditional retirement plan is tax-deductible and will only be taxed when you withdraw it later.

If you don’t have access to an employer 401(k) (and even if you do), consider an IRA. The annual IRA contribution limit in 2021 is $6,000, or $7,000 if you’ve reached age 50. If you are self-employed, talk to a financial advisor about opening a single-participant 401(k) or SEP IRA.

Q: If I Marry, Should I Keep My Investments Separate?

This is a difficult question because it can have emotional overtones. Nonetheless, it is a good idea to keep at least some of your investments and credit arrangements separate from your spouse’s. There are a few reasons for this:

• You can invest according to your own personal style, which may differ from that of your spouse.
• You will establish your own financial profile, which will be important if you later divorce or your spouse passes away. In addition, keeping your investments separate will minimize disruption caused by a divorce or widowhood, and can provide the basis for your own solid credit history.
• By necessity, your retirement investments are yours alone, although you can certainly name your spouse as your beneficiary.

Q: Can I Afford to Be a Stay-at-Home Parent?

There’s a good chance you’ll be able to take a career break to raise your children if you (and your spouse) have planned your finances for this possibility. A financial advisor can help you work out the financial implications of staying at home, such as relying on a single income, possible loss of the ability to contribute to your retirement plan, and perhaps a negative impact on your health insurance costs. If possible, have your spouse contribute to a spousal IRA.

Q: Is My Risk Tolerance Correct?

Your risk tolerance may start as an inborn feeling, but it should be conditioned on a solid knowledge base. The younger you are, the more you can benefit from an aggressive investment attitude, because you have time to ride out market volatility and let your earnings compound longer, but this isn’t always the most prudent choice, depending on your situation. Once again, a financial advisor can help by explaining the problems with being overly conservative or overly aggressive, and help you develop a more mature attitude toward risk. Post-2020, many people fear they’re invested incorrectly. Read our recent blog post: #1 Question Asked Since the Pandemic: Am I Invested Correctly Post COVID-19?

Q: What Happens to My Investments if I Get Divorced? Become a Widow?

Initially, you may feel overwhelmed if you find yourself on your own, either through divorce or the death of your spouse. Therefore, preparation is key, and that includes establishing easy access to all financial accounts, creating a will, and confirming beneficiary designations for your retirement and insurance plans. Understanding how Social Security spousal benefits work is also crucial, because it can mean extra money each month.

Regarding divorce, your lawyer and your financial advisor should discuss with you your rights, as defined in your state, regarding community property, your Social Security benefit rights, alimony, child support and so forth. If you maintained your own investments all along, you don’t necessarily have to make immediate changes – take the time to review your entire financial situation and how you should best respond to the changes in your own life.

Q: When Should I Take Social Security Benefits?

Because women statistically live longer than men, it’s important to maximize your Social Security benefits so that you are less likely to run out of money as you age. You’ll receive the highest annual benefit amount if you wait until you reach age 70 before filing your claim. If your spouse should pass away, you may earn more through survivor benefits, depending on your earnings record compared to your spouse’s.

According to the Social Security Administration, you are entitled to benefits based on up to 50 percent of your spouse’s work record if you are at least 62 years old or have a qualifying child under 16 who receives Social Security disability benefits.

In addition, you may be eligible for restricted application benefits while your spouse is still alive, even if your spouse is not yet collecting benefits. With a restricted application, you apply for spousal benefits while letting your spouse’s benefits grow. You must have been born before January 2, 1954, be currently married or divorced, and have reached full retirement age without claiming your own benefits. You can switch from your spousal benefit to your personal benefit at age 70.

For more on how Social Security benefits work, check out our new guide: Understanding Social Security.

Q: How Do I Find a Financial Advisor I Trust?

Financial planning is not a one-size-fits-all equation. What works for your neighbor, friend or colleague may not work for you. With that in mind, make sure to ask questions before hiring any financial advisor. These questions should cover their professional and educational background, the types of clients the advisor serves, the frequency at which you will work together, their ability to find investments that align with you values and their experience, which can help calm your nerves when the market becomes volatile.

Also, understand how the advisor gets paid. It’s important to work with a financial advisor who doesn’t profit from your trading activity, but rather works as a fiduciary, putting your best interest first at all times. If you can’t seem to develop a feeling of trust, you are well within your rights to find someone who does.

If you’re not currently working with a financial advisor or are looking for a second opinion, contact me directly. As founder and president of Heritage Capital, I have been helping people retire with confidence for more than 30 years. At Heritage Capital, we use active investment management and comprehensive financial planning to help control risks, so our clients can have a successful retirement no matter what happens with the markets or the world.