By Robert Toomey, Special to The Reporter
Women’s roles as it relates to financial planning have seen significant changes in the past several decades. This is reflected in a couple of ways: 1) women are increasingly choosing to not marry, and 2) women are increasingly the primary breadwinners in many households. These trends are raising new issues in the area of financial planning that are unique to women. Women now account for over 40% of primary breadwinners in U.S. households. It is estimated that by 2030, women will control two-thirds of U.S. wealth. Less than one-third of women feel financially prepared for later life goals such as retirement or children’s education.
A key financial planning issue for women is the fact that women live longer than men in general. The financial planning issue around this is what we refer to as “longevity risk”, meaning if a person lives long enough, she may outlive her assets. This raises planning questions around financial capacity, spending, and investment strategies. For example, if one is expected to live longer, it may mean investment assets may need to be invested for higher growth which normally would entail higher exposure to stocks and therefore subject the portfolio to higher volatility. While higher portfolio volatility may conceivably be discomforting, this should be offset by increased confidence that one has sufficient growth to achieve their long-term financial goals.
Many women state that one of their greatest needs from a financial planner is education as it relates to finances and investments. A good financial planner must be able to meet this need through demonstrating the benefit of a comprehensive financial plan and the benefits of investing for the long term using a multi-sector strategy. A comprehensive financial plan will take into account current and expected income sources, current and future income-generating assets, inflation and asset return assumptions, debts, inheritances, expenses, specific financial goals, and estate, charitable, or legacy planning goals. With respect to education pertaining to investments, an excellent starting point for many people is an understanding of how the financial markets operate and basics of the Capital Asset Pricing Model (CAPM). CAPM is an excellent foundational construct for defining the relationship between risk and return as it relates to diversified investment portfolios and is backed by over 60 years of research.
A majority of women breadwinners state they feel a high or relatively high level of stress around finances and financial preparedness. Part of this has to do with juggling many balls such as being a mom, having a heavy financial responsibility, maintaining a household, and in many cases, being in charge of family finances. A good financial plan prepared by a competent planner can go a long way towards providing significantly improved clarity of one’s financial roadmap and capacity. For most people, this clearly helps to reduce the stress around finances and improve their quality of life, particularly in knowing that one has significantly enhanced the probability of achieving their long-term financial goals by having a plan.
Robert Toomey, CFA/CFP, is Vice President of Research for S. R. Schill & Associates on Mercer Island.
