At some point in their lives, 90% of women will be solely responsible for finances¹, and nearly half of women – 44% – are the primary breadwinners in their households today.²  But with only 27% of married women saying they “take control” of financial and retirement planning² already, how prepared are you for this responsibility?

Marquette Payton, CDFA^® presents important strategies for addressing unique financial challenges facing women in any phase of their life and actions you can take today to feel better prepared.

Transcript

Marquette Payton: Hello, everyone. I am excited to be spending this time with you discussing financial security during Women’s History Month. Over the last several decades, we women have made great strides. We are more educated; we are more accomplished. We are more empowered than ever before. Yet, when it comes to investing in long term financial planning, many women are leaving those decisions to their spouses. It’s not just older generations, millennial women are likely to leave these decisions to their spouses more than any other age group. Here’s why this is a concern. While we women are pretty comfortable and savvy managing the day to day household finances, study show that women are feeling stressed and the lack of confidence when it comes to long term financial planning, because we haven’t traditionally been in this role. If you think about it, we couldn’t even get a credit card on our own without having a male signature until the equal Credit Opportunity Act of 1974 made it illegal to refuse a credit card to a woman based on gender. Today, we will be covering some important information to help you on your journey to financial security. Let’s jump into our agenda.

We will begin our time together going over some statistics to give you a sense of the unique challenges facing women. Then next, we’ll dive into some important strategies to consider as you prepare not only for the future, but for today as well. Finally, we will conclude our time talking about taking action. You already took the first step by participating in this webinar. My hope is that you will be able to immediately walk away with a couple of doable nuggets to get you started, and then some others to implement over time.

Before we discuss the unique challenges facing women, I want you to keep in the back of your mind that what we cover may apply not only to you, but to the women in your life, including a parent, a child, a sister, a friend. If you think there’s something that would resonate with them, please feel free to share what you’ve learned and the strategies that they too can implement.

Our first topic is women and responsibility. The first bullet listed on this page is one of the best ones from this entire section. This is because of the weight that it carries. Think about it, 90% of us will be solely responsible for the finances at some point in our lives. Yet, we are wholly unprepared for this role. It’s not because we aren’t capable, but as women, you all know that we are juggling many of life’s priorities, from raising children to caring for aging parents, to managing a career, to just keeping your household functioning, all of which can feel overwhelming. Sometimes, certain things have to take a backseat, and that something is often long-term financial planning. Our goal today is to help make this feel less overwhelming.

The other thing to consider on this page, is that we women tend to live longer than men. In the age group of 85 or older, there are twice as many women as there are men, and there are three times as many windows as there are widowers.

It is pretty exciting to see the strides that women have made over the last several decades, and especially noteworthy is that we are becoming leaders in the workforce. As you can see, we make up about half of the total civilian workforce, and the majority of those in professional and technical operations. Not only that, the number of women-owned businesses continues to grow, predominantly those owned by diverse demographic groups, and these businesses are generating a lot of revenue. This growth is particularly noteworthy due to the fact that ESG, or Environmental and Social Governance, investing is on the rise. This means that people are buying from, for example, environmentally conscious companies, or from businesses owned by women.

It feels really great to be able to say that 45% of millionaires in America are women. By looking at the next statistics, you will see that this number is only going to increase over the next several years, because women’s wealth is growing twice as fast as men’s’. Not only that, according to some estimates, women will control two-thirds or more of the nation’s wealth by 2030.

To demonstrate this growth, in 2014, women controlled 14 trillion in American personal wealth, putting them in the majority. By the end of this year, 2020, women are expected to control about $22 trillion. As we can see, we have seen a tremendous amount of growth between 2014 and 2020.

As we talked about earlier, women live longer than men, which means that we need to save more money to cover our expenses during our longer retirement years. Yet, American working women, in 2019, were paid just 79% of what men were paid. I’m sure you’ve likely heard about this pay gap, either on TV or through other social media outlets. If that wasn’t enough, of the 63 million wage and salaried US women between the ages of 21 and 64, a little under half of us participate in our company’s retirement plan. Plus, when we do contribute, we have about half of the amount in our retirement accounts compared to men.

What does our typical retirement funding look like? Well, one of the retirement funding sources is Social Security. As you can see, because women are less than men, our Social Security benefit tends to be lower. Keep in mind that Social Security should replace about 40% of your income in retirement. It’s really important to look at other sources of funding.

Just as in the previous slide, when we have a pension, we are less likely to receive the full benefit of these plans. Some reasons why include, we are less likely to qualify for company-sponsored retirement plans, and or we are less likely to receive the full benefit of those plans.

You are probably noticing a pattern here. When it comes to individual savings, again it’s the same situation. Our average account balances in savings and retirement accounts tend to be less than men’s. What can we do?

While we have a lot going for us, we also have some headwinds to some extent. The good news is that as women, we have the traits of being natural-born investors. Because we are really great at doing all of the things listed on this slide. We do things like set goals, do our research, manage risk and focus on the long term, all of which are important when planning for your financial futures. While we have the right characteristics in place, it is important that we take action by setting the right goals and creating a path to get there.

Speaking of the path, we’re going to dive into six important strategies that you can implement to help set the stage for your financial futures. These strategies are getting organized, retirement strategy basics, paying down debt, mitigating sequence of return risk, preparing errors, and expecting the unexpected.

Let’s go ahead and get started with our first strategy, which is getting organized. This is the foundation building strategy.

Here we talk about a financial records organizer. What is this? Well, basically it’s a file, we just put a fancy name to it. Why is this important? Well, it’s important to put this sort of thing together so that you have a simple and convenient way to have all of your important legal, financial and medical documents in one safe, centralized location. Now, many times when I bring up this idea, people will look at me and say, “I don’t need to worry about that. I know where all of these documents are.” The point is, the file records organizer, it isn’t for you. It’s for your spouse, it’s for your kids, it’s for your loved ones, because in the event of an emergency, those people need to be able to find this information.

I have a personal story to share in regard to this. Three weeks before I graduated from college, my dad died unexpectedly. As the only child of divorced parents, it was up to me to get my dad’s affairs in order. Well, because my father didn’t have a system such as this in place, coupled with the devastation of his loss, it made it really difficult for me to try to locate documents. It took a lot longer than it should have, and also cost a lot more than it should have. If you can give your heirs a gift, this is a really good one to get started with. Now, these documents, they can be stored in hardcopy form, or they can be stored electronically, or you might even want to do it both ways. You want to make sure that you go through the process. If you do go the hardcopy route, I think there’s a couple of things that you need to keep aware of.

You want to make sure that you have a couple of copies of the important documents, because even though they may be in a safe place, we are all subject to things like theft, fire, and floods, even incapacitation. Make sure that you create a duplicate copy, and keep that in a safe deposit box, or with someone like a trusted relative, a financial adviser, or a CPA.

Another thing that I like to recommend when it comes to the hardcopy format, is this, many times people will think, “Oh, I’ll just put together a three-ring binder or something like that.” There’s a potential issue with this. In some states, if you three-hole punch legal documents, they will in effect become invalidated. Also, even if your state doesn’t invalidate documents because they were hole-punched, as we all know, laws are subject to change. It’s really not worth going down that route. What I recommend is doing something like an accordion style folder, or if you do want to do a binder, just make sure that you have those clear plastic covers that you can slide your documents into to put together your financial records organizer.

Now, your next question might be, “Well, what do I put in this document location system?” As it turns out, there’s a number of things that you’re going to put into this. We’ve got some examples here on the screen that you can see. It could be something like life insurance policies, it could be bank information. For example, I have put one together for my family, and I’ve made sure we have a section for taxes, for insurance, for our home, investments and medical records. Again, this is going to be something that is very specific to your family.

I think it’s important to sit down and think about that. Maybe sit down with your family, and really figure out what’s important, and what sections should be within this, and then make sure that everyone knows that it has been created, because like I said, even though you may know where these documents are, and where this file is located, we need to make sure that other folks in our family know the same thing.

The next thing you’ll want to organize is your spending. Before you can even create a budget, you will need to take stock of your expenses and categorize them into needs, wants and wishes. As part of your plan, it’s also important that you are setting aside money and savings. This can be for things like your rainy-day fund, for retirement savings, and then other goals like a wedding or even a child’s education.

Let’s talk a little bit more about the rainy-day fund. You may have heard this on the news because it’s been a topic of discussion the last couple of years.

There was actually a study done in 2018 that found 40% of Americans would have difficulty covering a $400 emergency expense. This really speaks to the importance of establishing a savings habit and having at least a six months emergency fund at your disposal to cover unexpected costs like major repairs or an unemployment situation. Keep in mind that you don’t have to come up with that big amount right out of the gate. You can sock away a little bit each month to build up your rainy-day fund.

Also, we all know health insurance is taking a larger chunk of our paychecks these days. Based on your particular situation, it may make sense to look into a health savings account, or a flexible savings account. Both of these accounts allow you to set aside money on a pre-tax basis to pay for qualified medical expenses. The main difference is that the Health Savings Account offers more flexibility, and it also doesn’t need to be used up by the end of the year like the flexible spending account.

It is also a good idea to plan for other unexpected costs such as perhaps financial support for family members and the long-term care costs not covered by Medicare or individual health insurance policies.

Updating beneficiaries, this is something that is important and pretty easy to do, something that you can walk away with and implement immediately. Unfortunately, it is something that people tend to forget pretty frequently. A good habit to get into is reviewing beneficiary designations any time a life event occurs. Things like a marriage, a divorce, a birth of a child or grandchild, or the loss of a loved one. Some people are under the impression that a will overrides the beneficiary named on an account, but actually this isn’t the case.

Our second strategy today is related to retirement basics.

Interestingly, the concept of retirement was born in Prussia in the 1880s. Since that time, all sorts of retirement vehicles have been born, and the most popular employer sponsored version is the 401(k). For 2020, individuals can contribute $19,500 of their own to a 401(k). For those aged 50 and over, can contribute an additional $6,500. If you include employer contributions to that, the limit goes all the way up to $57,000 for 2020.

For individuals who want to set up their own retirement accounts outside of an employer sponsored plan, you can do so through an individual retirement account, as long as you or your spouse have earned income. If you choose to do this, you can contribute $6,000 in 2020. If you are over the age of 50, you can contribute an additional $1,000.

There are basically two flavors of individual retirement accounts in 401(k)s. Contributions to the first type, traditional IRA and traditional 401k, are tax deductible, and withdrawals taken in retirement are taxed as ordinary income. With the second type, which is Roth IRA and Roth 401(k), contributions are non-tax deductible. However, withdrawals and earnings are generally tax-free. It may even make sense to utilize both types if tax diversification strategies, depending on your particular situation. If you have a financial adviser, he or she can help you decide which one of these retirement vehicles will work best for you.

This is an important slide because the word power is very much descriptive of what can happen when you take full advantage of your employer’s matching contributions in your 401(k). Not only is it free money, it can be significant, particularly when you take into account that you have time on your side with a 401(k), and the opportunity for your earnings to compound during all those years.

The third strategy that we will be covering today is paying down debts.

As you can see from the statistics on this slide, our nation has its challenges when it comes to debt, particularly student loan debt. Data show that in 2018, 101 individuals had over a million dollars in federal student loan debt. As a comparison, in 2013, 14 people owed that much. Although we’re talking about debt right now, I think it is a good time to talk about establishing good savings habits.

We have all heard of people who have high incomes and are still living paycheck to paycheck. You also have those with more modest incomes who have great savings habits and manage to sock away $1 million or even more. A lot of this comes down to our behaviors and attitudes regarding debt and saving.

Staying on top of your FICO, or what you could call your creditworthiness score, is a good practice. You can even implement a system where you check your scores throughout the year for free. By requesting your free copy from a different credit agency each time, you will essentially receive a free report every four months. This is particularly important considering how much of our financial lives is now online, which of course, increases the potential for cyber thieves to strike and steal our identities.

Because your FICO score is basically your creditworthiness report card and dictates what interest rate you will pay when you borrow money, it is important to do what you can to improve it. There was an interesting survey conducted by the national foundation for credit counseling. That survey found people are more embarrassed to admit their credit scores than they are their weight. So, what can you do?

First off, it’s important to make your high-interest debt payments like credit cards a priority. Second, it’s important to make all your payments on time, as timeliness accounts for a third of your credit score. Finally, make sure that you are aware of all of your financial obligations, and not just focus on a couple of them. Sometimes people will just focus on paying down credit cards, but your FICO score includes all of your debt. Back to what I spoke about earlier, it all comes down to your choices and attitudes about money, debt, and saving.

The fourth strategy is mitigating sequence of return risk. We won’t be spending a lot of time on this strategy, but what I want you to know is that sequence of return risk is the risk of having negative portfolio returns, either shortly before or after you retire. A good example is the market situation back in 2008. People who are going to retire or who had just retired when the big market crash occurred, may have had their portfolios dramatically affected, especially if they weren’t prepared for that scenario. For a more in-depth conversation on this, I encourage you to reach out to your financial adviser, if you have one. If you do work with a financial adviser, the strategies are listed on this page for mitigating sequence of return risk, are good topics to discuss. As an example, we’ll look at the first bullet, which is requesting a retirement income plan that incorporates several what-if scenarios. Basically, your financial adviser can run your portfolio. Again, a best-case and a worst-case scenario to see how your portfolio would fare against each.

The fifth strategy is preparing heirs. This is particularly important considering the great amount of wealth that will be transferred over the next several years.

First, let’s make sure that we’re educating our heirs as to what they’re going to receive. Now, why is education so important? Well, according to a study conducted by the Institute for Preparing Heirs, 70% of wealth transfers fail. How do they define failure? They define failure as the removal of assets involuntarily from the control of the beneficiary. Now, most people think that the reason for this failure is because of taxes. But as you can see from the last bullet point, taxes really only account for 15% of the failures. The majority of the failures occur because there’s a lack of trust, or a communication breakdown within the family, simply because heirs weren’t prepared, or we didn’t have the conversation beforehand. That’s why this idea of preparing heirs is so important.

There are five strategies for preparing heirs. First, I think it’s important to think about your family’s values. And the first bullet point talks about this idea of a mission statement. We have found it helpful for families to sit down and think about the values regarding wealth as it’s passed down to future generations before that actual money is even transferred, and depending on your family, these values may include giving back to the community, may involve a philanthropic involvement, or allowing each heir the opportunity to use the family’s wealth to achieve his or her fullest potential.

By doing this, by determining what your mission statement is, it also provides a helpful way to memorialize these feelings into a document that some might call again, a family mission statement that can be shared across family members in generations. Another idea is just this idea of education. Heirs need to be educated about the wealth that they’re going to receive, and we’ve all heard about the issues in this country when it comes to financial literacy among younger generations. Just to highlight that idea, think about this.

There’s $24 billion of employer-matched contributions that are left on the table because people simply don’t put enough into their 401(k) to get a match from their employer. Along with that, the student loan debt now totals $1.4 trillion. This is a huge issue, not only for millennials, but people in their 30s, 40s and even older. Finally, think about how many people, how many young people are underinsured or not even insured at all. Again, this idea of financial literacy is something that I think is very important as well.

The final idea to think about gets back to this idea of conversation, and that is the second bullet point. Invite heirs to read wealth transfer documents. Sit down in a room before we have a death in the family to make sure that everyone understands mom and dad’s wishes. Make sure people understand what they’re going to receive, because if we can have that conversation now, we’re going to set expectations, and that’s going to help smooth out the overall wealth transfer process. Those are five ideas that you might consider as you prepare and educate your heirs.

The last strategy we’re going to cover is expect the unexpected, which is all about making sure you’re prepared to face life situations that are thrown your way when you least expect it.

What is this professional support network? Basically, it’s having a group of specialists who can help you with your various financial needs, just like a group of specialists you have in the health care world. This group would include professionals like a financial adviser, a CPA, an estate or a trust attorney, and if you own properties, maybe even a real estate agent.

Life insurance. There are a lot of factors to consider when it comes to life insurance, but the general rule of thumb is to make sure that you have enough to subsidize 70% of the wage earner’s income for seven years should the wage earner die. There are other rules of thumb for other circumstances, so this is a good conversation to have with your adviser if you have one.

As it turns out, people between the ages of 25 and 65 have a higher probability of becoming disabled than they do of dying. The issue with this scenario is that most people rely solely on their company’s policy, which in many cases only covers 60% of your income in the case of disability. I don’t know about you, but for me, taking a 40% pay cut would not be fun.

An access liability or an umbrella policy is something that is important and not very expensive but is often overlooked. This would cover something like someone getting injured on your property or in a car accident that exceeds the amount of your standard coverage. As you can imagine, expenses can pile up pretty quickly. When you consider that personal negligence awards are about three million dollars, and that future wages can be garnished, it really builds a compelling case to look into this type of coverage.

Some people feel that basic estate planning is only for the super-wealthy, but we suggest that if you are age 18 and have a dollar to your name, that you need a will. Remember, a will captures your wishes for not only your monetary assets, but also all of that stuff that you own in a letter of instruction. There are some do-it-yourself documents online, but sometimes, honestly, those can create more costly issues than if you had worked with an attorney to draft your plan. It isn’t as expensive as you may think. Then you have to ask yourself the cost of not having one.

Next is a medical power of attorney, which appoints someone to make medical decisions on your behalf. I learned the importance of not having one of these documents the hard way when my mother was placed in intensive care in the fall of 2018. You can best bet, once she was recovered, that is the first thing that we addressed.

Now, one other item that I want to point out, as far as this system goes, is this idea of digital assets, which is becoming a larger and larger part of estate planning. What do I mean by digital assets? If you think about the number of online accounts that you have, each of those online accounts is a digital asset. This could be your email account. It could be your iTunes account. It could be your American Express rewards account, your Amazon account, your Instagram, Facebook, so on and so on. Turns out that we all have, on average, about 90 of these online relationships. These accounts, these digital assets may have monetary value, they may not, but this is as our lives become more and more digitalized and more and more online, this is going to be an important thing that you need to think about, and you need to make sure that you make your wishes clear as far as how those assets are going to be transferred onto the next generation, or how those assets are going to be disposed off.

A lot of wealth transfer plans today don’t even account for digital assets. Think about when you sign up for an online account, you are “reading all of that legalese” and accepting whatever terms of service are presented to you, including what happens to that account upon your death. Wouldn’t you rather make that decision than have a corporation make it for you? It’s an important thing to think about. Like I said, many may think, “Well, these things don’t have a lot of value,” but if it’s pictures, if it’s music, these things can have a lot of sentimental value. When I talk about legacy, a lot of times legacy is financial, but many times someone’s legacy is sentimental in nature as well. That’s an important little tidbit to think about and discuss with your family.

Finally, it’s important for you or your parents to establish a power of attorney in case of something like an incapacitation, bills still need to get paid. This document provides the ability for someone to do this on behalf of the incapacitated person.

Last and most important thing we will be talking about, is taking action.

As I mentioned at the beginning, it’s great that you took time out of your busy day to listen to this webinar. The next step, which is tough for all of us, is taking action. Again, because life can get so busy, and we put other priorities ahead of some of the things we talked about today. A good start is collecting your important financial documents, writing down your concerns and questions, and then if it makes sense for you, working with your adviser to create a plan to help you meet your goals and help you feel the security of having a plan in place.

Thank you so much for your time today. I hope you found some of these strategies that we discussed beneficial. I would like to wish you well on your financial journey.

The information contained herein is provided for informational purposes only and should not be construed as legal or tax advice. Your circumstances may change over time so it may be appropriate for you to evaluate tax strategy with the assistance of a professional tax advisor. Federal and state tax laws and regulations are complex and subject to change. Laws of a particular state or laws that may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of the information contained in this document. Janus Henderson does not have information related to and does not review or verify your financial or tax situation. Janus Henderson is not liable for your financial advisor’s or your use of, or any position taken in reliance on, such information.

A retirement account should be considered a long-term investment. Retirement accounts generally have expenses and account fees, which may impact the value of the account. Non-qualified withdrawals may be subject to taxes and penalties. For more detailed information about taxes, consult IRA Publication 590 or a tax attorney or accountant for advice.

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C-0220-29231 03-30-21 ¹ “What Millennial Women Can Teach You About Financial Security,” Kim Kiyosaki, RichDad.com, June 2, 2016
² Prudential, “Financial Experience and Behaviors Among Women Study, 2014-2015