Happy National Women’s History Month! This month we wanted to take the time to celebrate the numerous accomplishments and contributions of women throughout history. With each passing year, women continue to break more barriers and shatter more glass ceilings than ever before. For our part, ML&R Wealth Management wanted to propel women of today forward by answering your financial planning questions each week in our special month-long series, “Women’s Guide to Investing”. We asked the women in our community what they wanted to hear from a Financial Advisor as a woman. Each week we shared a variety of questions and provided answers and explanations to help you feel more empowered and confident as you navigate through your financial journey. In this final blog post, we take a look at tips on how to prioritize the financial demands for yourself and those you love, explain the difference between day trading and long-term investing, and discuss how to account for the extra years in retirement simply by being a woman.
How will I pay for my parents, college for kids, weddings, etc.? All while trying to save for retirement.
Answered by Carli Smith, CFP®, Wealth Management Advisor
Biologically, women tend to be nurturers. It is part of who we are. We want to help and care for those we love. Whether we ask for it or not, women provide the majority of informal care to spouses, parents, friends, children, and neighbors. We are hands-on, companions, serve as surrogate decision-makers, and advocate for those that mean the most to us. Sometimes, this desire to help others also comes in the form of financial support. While there is nothing wrong with wanting to help someone out, it is important to do so without it harming your own financial wellbeing.
As a Trusted Advisor, we would recommend going through a comprehensive financial planning process to determine if you are on track to reach your retirement goals. This should be done before you save a significant amount for college, put money aside for weddings, or agree to help out parents financially. It is incredibly difficult to say no to people or to dial back the financial support without knowing your own financial situation. If you find that you are on track for retirement, there is no harm in helping others when they need it. However, if you’re helping others at the expense of your own financial wellbeing, then it is time to take a step back and look at the big picture.
Saving for college
Most of us daydream about the day our children go off to college. We work hard and save so that our kids have a chance to educate themselves and get a great start into adulthood. Nowadays, the price tag on such a dream is tremendous and seems out of touch for many. The important fact is you cannot borrow for retirement, but your child CAN borrow for college or find other ways to fund it through scholarships, part-time work, etc. By going through the financial planning process, you can determine what you need to save for retirement so that you can retire by a certain age. From there, you can then determine how much you can afford to put aside for college each year. If any funding gaps exist once your child enters college, there are many options to help cover the unfunded costs.
Paying for big life events
Who doesn’t love a great wedding? There is nothing more spectacular than spending an evening, or weekend in some cases, with all your friends and family to celebrate the love of two people. With any spectacular event, naturally comes a spectacular price tag. To make sure the cost of a wedding doesn’t derail your own financial goals, it is important to be realistic and honest with yourself and with your child. If paying for a wedding is something very important to you, incorporate that into your overall financial plan. By including it as an input for your financial plan, you can determine how much you can spend from your investment portfolio without throwing off retirement goals. Or, you can calculate how much you will need to save each year to reach a certain sum of money in the future. By going through this exercise, you will be able to determine (and hopefully stick to) your spending or saving boundaries for such an event.
The notion of financially supporting parents can mean different things to different people and cultures. In some cultures, it is expected that grown children will eventually take care of their parents. For others, the expectation is that parents should save and invest enough to be able to retire without needing financial help from their children. Either way, it can be challenging to plan around the financial demand of caring for an aging parent. In order to be successful at planning for your own retirement while also having to support parents, it is important to go through the financial planning process to determine where you stand with what you are currently saving and investing today. If you are struggling with how much to help out, during the financial planning process, a Financial Advisor will be able to pull different levers to show a successful retirement outcome while providing support to your parents. For example, if there is no way around sending a parent a certain sum of money each month, which means your own savings suffers, you may have to work a little longer than you want in order to maintain your own lifestyle in retirement.
By now, you may have noticed a theme when it comes to financially supporting others along with saving for your own retirement. By prioritizing others instead of yourself, you may run the risk of jeopardizing your financial wellbeing. This could dramatically impact the quality of your life during your golden years. Going through a comprehensive financial planning process with a trusted Financial Advisor will allow you to get a clear picture of where you stand today based on what you are currently saving and investing. Armed with this information, your decisions on how to help others become informed and can be prioritized. After all, balancing competing financial goals is what good financial planning is all about.
Is day trading really investing?
Answered by Scott Adair, CFP®, Wealth Management Advisor
Both day trading and stock investing are activities that seek to make profits in the stock market, but day trading is generally not considered to be investing in the traditional sense, i.e. building your nest egg. Strictly speaking, day trading involves a professional trader buying a position and selling it within the same day. Day traders often use leverage (borrowed money), sophisticated strategies, and high volume to attempt to profit from small price movements and short-term mispricings. Stock investing involves buying a share of ownership in a company and holding it for a longer period of time, with the expectation that the company’s profits will rise (along with the stock price). The investor can then sell the stock for a profit. While stock investing can be risky, day trading is inherently even riskier and requires a significant amount of time, capital, and expertise to consistently make a profit.
Although full-time day traders can potentially make a profit regardless of whether the market goes up or down, many amateur investors have been tempted to try their hands at day trading at the height of a bull market frenzy, with media-fueled dreams of getting rich quickly. The false sense of confidence that a raging bull market can bring can lead to bad consequences when a novice investor takes the plunge into the world of day trading. Our advice is to invest for the long term and focus on the things you can control versus what you can’t. Own a portfolio consisting of well-diversified, low-cost mutual funds and hold them for the long term rather than chasing short-term market returns. Day trading is simply not worth the risk for the vast majority of people.
Since our life expectancy is longer, how do we account for the extra years of retirement?
Answered by Kira Scott, Wealth Management Associate
Between women living longer, the gender pay gap, and taking time out of the workforce to be caregivers which reduces the ability to save for retirement and access to employer-sponsored retirement plans, women are often subject to the risk of a retirement gap shortfall. Women also are generally more risk-averse with their money than male counterparts and tend to invest in less risky assets, which may not outpace inflation and help build their portfolios for retirement. Below are a few tips that can help women manage this gap.
Maximize Your Retirement Savings Contributions Now
One of the most effective things you can do for the future is to start maximizing the amount you put away towards your retirement now because the more time your money has to compound in a tax-deferred vehicle will help enormously. One of the most important parts of an employer-sponsored retirement plan is the fact that money comes out of your paycheck into the retirement plan before it hits your bank account.
If you do not have an employer-sponsored retirement plan, you should follow the same psychological principle in contributing to an IRA annually and contributing funds before your other expenses are considered. If you are self-employed, you can look at a SEP IRA or solo 401(k). One may allow you to contribute more than the other depending on income level. If you prioritize your own retirement first from a funding standpoint, then that forces you to live within your means with what is leftover.
When you turn 50, you are eligible to contribute more money to your retirement plans as well. The tax deduction you can claim on these ‘catch-up contributions’ could save you over $1,000 on your annual tax bill as well. For 2021, everyone can defer paying income tax on as much as $19,500 that they contribute to a 401(k), 403(b), or a Thrift Savings Plan for government employees. For those over 50, you can contribute an additional $6,500 annually to these plans. If you are instead contributing to an IRA, the maximum contribution for everyone in 2021 is $6,000, and those over 50 can put in an additional $1,000 ‘catch-up contribution’. Be aware that workers who are eligible for a 401(k) plan may be prohibited from claiming an additional tax deduction on funds contributed to a traditional IRA.
Pay Close Attention to What You Earn and Spend
Keep close watch over what you earn and what you spend. As advisor Carli Smith previously mentioned in her article The Hierarchy Of A Meaningful Financial Plan, what you save and spend are significant levers you can control that impact your financial success. Having a comprehensive financial plan helps you determine how to save and invest to build and protect your wealth, while proper spending strategies help you maintain your wealth. There are a number of apps out there that can help you keep track of spending and a budget.
Consider Delaying Your Retirement
Consider delaying your target retirement age, even if you are working fewer hours, slowly stepping back, or working seasonally. It will keep you engaged, keep you from dipping into your savings pot longer (which, you guessed it, helps with compounding), and keeps you covered from a health insurance standpoint until Medicare kicks in at 65. The cost of private health insurance from retiring before age 65 (when Medicare kicks in) can really drain your savings faster than you think. Health care costs can also negatively affect women in retirement, as they are more likely to have longer periods of disability later in life, and because their spouse’s health care costs can eat away at household savings.
Delaying your target retirement age can be especially difficult when your spouse is older than you. A lot of couples tend to retire around the same time, and because women are generally a few years younger than their spouses – this also reduces the amount of retirement funds they have compared to their spouses. Ongoing long-term care is one of the most significant health care costs in retirement, and Medicare may not always cover out-of-pocket costs such as nursing home care after 100 days, assisted living, or home health care. Long-term care insurance is generally not cheap either.
Delay Claiming Social Security Benefits
Delay Social Security income as long as you can. While you are eligible to receive Social Security as early as age 62, your benefits are reduced by a certain amount for each month you begin collecting before what is considered the ‘normal’ retirement age of 67 if you were born after 1960. If you wait until you are 70 years old, you will maximize your Social Security payments, which will also help shore up that ‘retirement gap’ we spoke of earlier that is common with women. Advisor Scott Adair discusses more details regarding Social Security and Medicare benefits for retirees in his article, “Social Security & Medicare – An Overview for Retirees”.
“Women’s Guide to Investing” Week Four Wrap Up
This wraps the 4th week of our special series, “Women’s Guide to Investing.” If you missed weeks 1, 2, and 3, please check them out here, here, and here. At ML&R Wealth Management, our goal is and always will be to empower women to confidently navigate through their own financial journey. Our bench is deep with experienced and knowledgeable Financial Advisors who can accommodate a woman’s unique concerns when planning for their future. We are here to work through any life transitions you may have, such as a career change, divorce, the death of a spouse, the care of aging parents, or the support of children. Please contact us if you have any questions about this or anything else.
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