Financial planning for women is different than how it works for men.
Reason 2: Women make less money than men!
This is a series of three articles: #1 Covers women living longer than men, and #3 will cover women staying out of the workplace to care for the family.
In part 2 of my miniseries on why retirement planning is different for women than for men, I’d like to talk about the obvious – women make less money than men.
We’ve all heard the sobering statistics. On average, women make 82 cents for each dollar made by men. We also all know that the gap is even wider for many women of color. These figures hold true across occupations and regardless of the level of education.
Single women are at an even more substantial financial disadvantage. Single women and single-earner households have the added challenge of all their income eggs in one basket. Further multiplying the economic impact of the gender-based wage gap, single women won’t have spousal survivor benefits coming in from pensions, may not qualify for spousal Social Security options, etc. — they’re all on their own.
As progress has stalled (if not outright reversed during the pandemic) in closing this gender gap. Women have to compensate for this inequitable fact of life when planning for their financial futures.
We have less to work with, so we must get smarter
When we have less to work with, we must get smarter with the resources we do have available to us. For example, are you being as smart as you can in mitigating the risks to your employment or small business ownership income? During your working years, there are three primary risks to your income:
- Unemployment or loss of business
- Death of you or your spouse or partner
The counter to unemployment is to have a cash reserve. While traditionally that has meant three to six months of expenses, you may need more depending upon your profession. Some jobs have fewer opportunities for reemployment at the same income level as their predecessor.
Some employers offer disability benefits to employees. Even when offered, however, many people don’t bother to elect the short or long-term disability benefits available. Most employer-provided benefits will be taxed at the time you have received them. While disability benefits coming from an individual policy, are untaxed. When facing a disability, typically your expenses will go up. Supplementing employer disability plans with a private disability policy can help get you closer to your actual take-home pay amount.
Buying life insurance to replace your income
When it comes to life insurance, many people fail to consider that the prime factor in determining an appropriate amount of coverage is income replacement. That is the amount of annual income that would have been contributed to the family/survivors by the deceased for the rest of their working lives. Insurance sales tend to emphasize the benefits of cash value life insurance policies. However, these policies are generally far more expensive than term life insurance policies. And they can also end in a set number of years.
If you make $50,000 after-tax and anticipate working for 20 more years, that means your family is expecting to receive $1,000,000 of income. If you were to die today, will that $1,000,000 get replaced? Using term insurance rather than cash value insurance frees up money you can instead use to build up your cash reserve or to pay the premiums on a disability income protection policy.
Can you make smarter decisions in leveraging any other employer-provided benefits you already have? You may have options such as health savings accounts or flexible savings accounts that can save you significant amounts of money on medical and/or dependent care expenses. Are you taking full advantage of an employer match (a.k.a. free money toward your retirement) to your 401(k), 403(b), or 457 accounts? These elections can put thousands of dollars in your pocket every year.
Making smarter credit card decisions
Can you make smarter decisions when it comes to using credit cards? You may consider yourself a smart shopper who always finds great deals. If you regularly carry a balance on your credit card, however, you end up paying more for those items. Not only are you paying more for the item or service than you intended, but you’re taking money away from achieving other goals, such as paying off your student loan debt, paying for insurance protection, building up a down payment for a house, or investing for a carefree retirement.
If you’re being paid less than you’re worth, maybe it’s time to find a new employer with fairer pay practices. Or maybe you might even consider working for yourself. Working for yourself opens up a world of options to set up your own plans! You can save even more for your retirement in tax-advantaged funds than you could be working for someone else.
While smarter decisions may not completely close the pay gap, smarter decisions will certainly start you in the right direction.
Ready to pursue your smarter money moves journey?
Click here to initiate a conversation with me to discuss financial planning for women. Learn how you can start planning for a long(er) and comfortable retirement!
As a financial consultant, specializing in the financial needs of women, Kathleen Connors understands that you want to work with an adviser who is relatable and trustworthy. She focuses on life’s unique goals and takes the time to educate her clients about their financial future. Kathleen is passionate about helping women reach clarity and confidence around their finances. It doesn’t matter where a client may be within their life’s journey. Kathleen brings warmth and compassion to the financial planning process, with no judgments.