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Smart Financial Planning for Women
by Sarah Kahne

A few months back, I went in for a financial planning session with my company’s financial advisor. At the ripe old age of 30, I expected to be tossing perhaps $100 a month at my retirement account and calling it good.

Imagine my surprise when my planner told me I would need at least $2.7 million socked away to be able to retire comfortably at age 65. That amount was mind-boggling to me. Then, to find out my $100 a month contribution plus my employer’s matching program would only get me about one-quarter of the way there, put me into a panic.

As a single mother, I can’t imagine being able to set much more aside for retirement, when I’m sweating the small stuff like new shoes for my son and the big stuff like saving for college. I felt a little better discovering I’m not alone in this situation.

Shelly Larsen, a 26-year-old store clerk in Seattle, said she doesn’t even expect to earn $2.7 million during her entire life. “I’m working paycheck-to-paycheck right now,” she says. “It’s hard for me to imagine being able to save $50 a month, let alone wrap my head around a couple million dollars.”

Larsen works part-time during the day while her 6- and 8-year-old children go to school. To avoid a day care bill upwards of $1,000, she keeps her hours down and lets her husband take on the role of family breadwinner. “My husband has a 401(k), but if anything every happened to us, I assume he would get it all,” she says. “I guess we should have a talk about getting me an account.”

Too many women are in a similar situation.

Grace Buxton is a 62-year-old divorcee from Seattle who just entered the workforce six years ago. “I spent my years making a home for my husband and taking care of my children,” she says. “That’s what I was expected to do.”

After divorcing, she found that her monthly alimony wasn’t enough to pay the mortgage, let alone finance the lifestyle she’d grown accustomed to during her marriage. “Do you know how hard it is to find a job after you’ve been minding the house for 30-something years?” Buxton asks. “I’ve never had to worry about being able to pay bills or put food on the table before. I just had to fulfill my part of the bargain.” She now works for a house cleaning firm and retirement isn’t even an option right now.

The United States Department of Labor reports that just 47 percent of the 60 million wage-earning and salaried women working in the U.S. participate in a retirement plan. Often, this is due to women working part-time jobs that don’t qualify for participation in an employer-offered retirement plan. Women, too, are more likely to interrupt careers to act as caregivers for children or parents, which results in their ultimately contributing less toward retirement.

Here are some startling statistics to keep in mind when you assume that your husband’s pension, social security and retirement savings will see you through your golden years:

• Many women spend more than 15 years at home caring for children and parents, which results in fewer promotions, smaller paychecks and smaller pensions when they do return to the workforce. It takes about five years to make up for every one year out of the workforce;

• An average caregiver loses $659,000 during a lifetime in reduced salary and benefits;

• More than 50 percent of first marriages end in divorce;

• Some 58 percent of marriages end with the husband’s death;

• The average age of widowhood is 56;

• Women are four times as likely to be widowed than men; and

• Women outlive men by an average of seven to 10 years.

The Actuarial Foundation reports that nearly one-third of women who are 65 years old today will live into their nineties. That means a woman’s retirement account needs to have the wherewithal to last some 30 years after she bids adieu to clocking in every day.

But knowing that saving is important is one thing. What needs to be done to actually get started?

Lorelle Farber, an advisory specialist (a fancy name for financial planner) with Smith Barney in Seattle, says every little bit helps. She started putting money in a 401(k) 27 years ago.

“I started out at 1 percent because that’s all I could afford,” she says. “After a few years, whenever I got a raise, I would split it between my 401(k) and my checkbook. My goal is to be putting 15 percent into my 401(k), up to the maximum allowed.”

As an advisor, she often tells clients: “It’s not about the goal itself — it’s about the commitment. Committing to goals isn’t just about saving money. It’s about investing your time. Think about the time you spend planning a two-week vacation. Then think about planning for a 20-year or 40-year vacation. It takes time, persistence and commitment.”

Farber recommends that women be realistic about what they need, versus what they want when it comes to saving. “You need to think about food, clothing and shelter first, versus traveling the world,” she says.

For married women, she recommends dual participation in the retirement-planning process. Although most women don’t want to think about the “what-ifs,” the general consensus among financial planners is that both parties should retain separate investment accounts. Farber says she talks to couples individually about what their needs may be if the relationship fails. Many of her clients are divorcees who, in retrospect, regret not planning life without a partner.

While there are often more hoops to jump through when it comes to women who are self-employed or who own their own business, Farber basically recommends the same plan of attack.

“As long as you are earning income, you still have to pay taxes and save,” she says. “Be careful when the business is all about yourself — like a massage therapist or realtor — and can’t be replicated. You can’t sell your knowledge for a price, but you can sell your client list.”

Regardless of circumstances, Farber recommends starting a savings plan today. For older women, the reality is that it must start today. For younger women, saving now can alleviate the pressure of having to save $500 a month during the years near retirement.

Ultimately, the best recommendation, Farber says, is to start small.

“You have to start somewhere,” she says. “Find a financial advisor you can communicate with openly and honestly. Being a financial advisor, I try very hard not to judge people or their habits. I can assess situations, give ideas and offer courses of action. Many advisors offer complimentary consultations. Take advantage of this.”

Beverly McConaghy, an investment advisor with Financial Investment Network Corp., says the first step is to just start saving. It’s a waste of time to put the money in a traditional savings account. To receive the maximum benefit, open an Individual Retirement Account and contribute the maximum pre-tax deduction of $2,000 — this goes for 20-year old women as well as 50-year old women.

Similar savings can be achieved through 401(k) plans offered by employers. Employers often have a matching program of about 3 percent annually. McConaghy recommends never turning down free money, particularly when it comes to retirement.

“It’s OK to start small. I’m betting you won’t even miss that $50 or $100 every payday, but the point is that you’ve got to make your money work for you,” she says. Her typical recommendation is to choose diversified funds that include a variety of stocks and bonds. If there isn’t a retirement savings program available through your employer, McConaghy says it’s integral to find a financial advisor. There’s nothing more regrettable than losing your retirement because you're playing with volatile or aggressive funds, she says.

Both Farber and McConaghy agree that it’s not really a good idea to bank on Social Security payments. Many financial planners don’t even factor in these government funds when planning, telling their clients the best case scenario is that Social Security will still be available, but that the payments will only add to the pot as extra spending money when retirement comes.

Perhaps the best advice, though, is to keep plugging along.

“The reality is that neither your home nor your retirement account is your biggest asset. Your ability to earn income is your biggest asset. As long as you can and want to work, you should,” Farber says.

Sarah Kahne is an assistant editor at the Business Examiner in Tacoma, an avid freelancer and single mom to a 7-year-old boy.

©2007 Caliope Publishing Company