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Women and Money

The relationship between women and money if often very different than that of men.  When married couples deal with financial matters these differing views can create stressful situations.  Let’s examine some of the key ways in which women view their financial future.

We have three learning objectives for this post:

  1. To identify some key differences in how women and men sometimes differ on their views of the purpose for their accumulated wealth
  2. Examine the unique financial planning needs of women and think about solutions
  3. To understand the three big financial risks in retirement and how to get them under control

Before we start, it is important to acknowledge that both male and female personalities differ across couples and a broad-brush comment that “women tend to be more conservative financially than men” is not going to always be the case.  However, in over 30 year of developing investment and financial plans, I’ve observed behaviors that tend to apply in most cases.

The first key difference between the sexes tends to be that females are, in-fact, more conservative and risk-averse when contemplating their financial future and thinking about investing money to earn a return.  A survey conducted by today.com (the online presence of the Today Show) revealed women’s two biggest financial fears as they approach retirement is having too much debt (20% of respondents) and running out of money during their lifetime (19% of respondents).

Their male partners might exhibit the opposite behavior, liking debt even in retirement and positioning retirement income portfolios heavily in aggressive investments like stocks.   These tactics work well when financial markets have a tailwind but can quickly cause large losses if the stock market sustains a large decline after retirement distributions have begun, or if the debt turned out to be invested in a bad opportunity and still needs to be repaid.  Of course, investment time horizon and the emotional ability to deal with financial market ups and downs are also important as retirement income plans are put into place.  Emotions of fear and greed tend to lead us to bad financial decisions.

The tendencies toward more conservative financial behavior are probably rooted in demographic and socio-economic trends over the decades, which create unique planning needs for women.  Women have longer life expectancies so naturally need financial assets to be around for a longer time on average to provide for their lifestyle and healthcare.   They are often younger in the relationship than their spouse.  I think in general, females may also place a higher priority on their legacy, both financial and personal, and this leads to a desire to leave assets to children or charitable organizations at the end of their lives.  In other words, they are afraid of running out of money during their life.

Women also tend to take time away from the workforce during their careers to raise children or care for aging parents.  These activities may reduce a woman’s Social Security benefit and possibly result in lower earnings and savings for retirement compared to a male counterpart.   There is also the issue of wage equality between male and female workers in similar roles.  This is something that is getting a lot of attention and will hopefully be corrected.

Because a woman is often younger than her husband and has a longer life expectancy, the issue of longevity is a higher priority for the female spouse.  This leads to the importance of planning for Social Security and pension income, in addition to prudent management of retirement portfolio assets.

Longer life expectancies also increase the 3 big retirement financial risks, which are:

  1.  Inflation
  2.  Running out of money
  3.  Sequence of returns risk

We won’t go into great detail on these risks here, but to hit the main points:

Inflation Even a 2% inflation rate will cause the cost of living to almost double over a 30 – 35 year retirement.  Living to age 90 – 100 is becoming more common, making very long retirements a distinct possibility.  Factoring inflation into your retirement income plan is important to avoid bad surprises later in life.

Running Out of Money – The longer life expectancies previously mentioned create stress on your asset base to provide income over your lifetime.  It is important to invest your assets productively so that they not only provide the needed income but grow to last for your entire life.  The trick is investing productively, but not taking risks that could damage your plan.

Sequence of Returns Risk  Sequence of returns risk is basically just having unlucky timing when you choose to retire.  Say the stock market drops significantly the year after you retire. If you start drawing income from your assets and you have too much of your money exposed to these declining values, it can potential permanently damage your retirement income.   Techniques such as maintaining a balanced investment portfolio or using a “time segmentation approach can go along way toward reducing or eliminating sequence of returns risk.

For help in developing a plan to meet the goals of your retirement expectations, call us at 941-778-1900 or visit www.integracapitaladvisors.com to schedule a time to talk.

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