Women & Wealth: Unique Obstacles for Growing Your Money

I love talking to women about money. Yes, it’s taboo to air your finances in public, but everybody wants to talk about it! And it’s vitally important that we do, because women face particular challenges when it comes to growing and protecting their money.

Women have never been more economically powerful– we make up a majority of the workforce, we have the most consumer buying power, we hold over 50% of all stock– yet, according to a recent study by Prudential, just 2 in 10 of us feel “financially prepared.” This uncertainty isn’t solely a product of the weak economy; there are other, more subtle factors at play– and they may surprise you. Whether or not you have children or are married, these factors are affecting you and your finances.

First surprising obstacle? Women live longer. But this is good news, right, ladies? The average American woman will live to be 81, the average man only 76. Longevity is a blessing, but it also necessitates something you may not have anticipated: more money. Think about it. Even if your retirement payout from your 401K or IRA or savings is only $20,000 a year, that’s another $100,000 that the average woman will need to live out her life over the average man. Not an insignificant number, is it? Living longer also increases the possibility that long-term managed care will be necessary toward the end of your life, and it’s not cheap– you can pay upwards of $250 a day! Thinking about where you’ll spend the last years of your life may sound grim, but I promise it will only be grimmer if you aren’t prepared!

Making up that disparity between what you have and what you need is even harder because women make on average 1/3 less than men over their lifetimes. Before you shake your fist at pay inequality, the reasons for this earnings gap go deeper than simple wage discrimination. Some studies suggest that women are more likely to choose low-wage professions like education and social work, and others that women are not taught to negotiate for higher salaries, but most can agree that motherhood really hits earnings hard. Taking time off work to have and care for children doesn’t just mean a smaller paycheck in the short term; it also translates to smaller employer contributions to pensions and retirement funds, which in turn means you are earning less money as your savings accrue interest. Nurturing your retirement nest egg to maturity takes a backseat when you’re nurturing your kids to maturity as well!

I don’t tell you all this to depress you! I tell you this to prepare you, to empower you. So what can you do to counteract these effects? All the above concerns are issues that you can address; you just need to know where to look and what questions to ask. There are financial products and services you can take advantage of now— whether you’re 22 or 42– that will help you accrue wealth, no matter what your income. (Really. You don’t need to be rich! In fact, some of these tools aren’t even available to those above a certain income bracket.) Here are just a couple things to ask a financial advisor about to get you started:

  • “Tax advantage” savings: Some savings plans tax you on the money you put in, some on the money you take out, and some will never tax you! (It’s true!) We have all heard of IRC 401 k, but have you heard of IRC 7702? Look into Roth IRAs and certain life insurance policies that allow you to grow your money tax advantaged inside the policy.
  • Protection: You insure your house, your car, but not your life? What about insuring your income and retirement? If something happened to you that affected your income, who else would be affected? Would your kids be able to go college? Will your retirement income last you for as long as you live?  There are strategies that can protect you from some of these uncertainties.

Women have singular challenges when it comes to financial planning. But recognizing these challenges presents the opportunity to seize control of your financial future.

Categories: Thoughts & Opinions

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