There are more fables in regard to women and money, it seems, than in all of Greek and Roman mythology combined. Below, financial professionals separate financial fact from fiction for women at any stage of life.
In our 20s
Fiction: I am still young. I have plenty of time before I need to start saving.
Fact: “The earlier you start to save, the longer your assets can potentially accumulate, thanks to the power of time and the ability of your earnings to generate additional earnings through compounding,” says Janenne Lackey, CFP, chief compliance officer and partner at Wilde Wealth Management Group. “The cost of procrastination is expensive.”
Just how expensive?
“If you can believe it, if a woman invests just $189 per month starting at age 25 and does so for 40 years, using a hypothetical average 7% return, she will have $500,000 by retirement at age 65,” Lackey says. “Do the math—this woman has only invested about $91,000 in those 40 years. The other $410,000 comes from the power of compounded returns.”
Conversely, according to Lackey, if a 50-year-old woman wanted to get to that $500,000, she would have to contribute an eye-bulging $1,568 a month, at the same hypothetical 7% return, to even come close.
Turns out that Ferris Bueller put it best when he said that life moves pretty fast.
“Of course, he said, ‘If you don't stop and look around once in a while, you could miss it,’” Lackey says. “When it comes to saving, if you don’t set up a savings strategy early, you could miss a chance at earlier retirement and financial security.”
Fiction: I contribute here and there to my 401(k). That’s all I need to worry about right now.
Fact: “Aside from not taking advantage of time while it is still on their side, women new to the job market also often focus on one savings option—usually a 401(k) through their company,” says Dorine Sanchez, CFP, AIF, a principal at REDW Wealth. “While a start, putting all of one’s eggs into one basket is rarely the best option for anything—savings or otherwise.”
Therefore, after contributing the maximum amount to a 401(k) and taking advantage of any match offered, Sanchez recommends looking into starting a Roth IRA or traditional IRA.
In our 30s and 40s
Fiction: I am pulled in so many directions that I just don’t have the time to worry about retirement right now.
Fact: “By this time, women have not only put in the blood, sweat, and tears to their careers, but many have also gotten married, started families, and/or committed to a community cause or two,” Sanchez says. “As a result, financial planning may fall to the spouse or partner—or fall off the map altogether for years.”
This myth is particularly dangerous given the sheer number of years women outlive the male counterparts in their lives, on average.
“If retirement planning is strictly a delegated duty of one’s partner, what happens if something happens to them,” Sanchez says. “In times of great stress or grief, adding the financial stress of the family’s entire future to one’s plate can feel insurmountable.”
Sanchez recommends keeping things simple by answering one question as a couple:Who do you want to be in retirement?
“Talk about the answers to this question openly and collectively, maybe even with a counselor or third party to help prioritize wants and needs,” Sanchez says. “Once you know what you’re trying to achieve, you can gather information on your own from publicly available information as a team, or you can work with a financial professional to build a long-term strategy and short-term tactics to get there.”
Fiction: I will get half our family’s assets should my partner and I divorce.
Fact: “This is still among the biggest misconceptions so many folks have when it comes to love and money,” says Chadi Majed, partner and senior wealth manager at Wilde Wealth Management Group. “The truth is all jointly owned property and monies are considered during a divorce.”
And, perhaps even more important, all liabilities, such as an underwater home, student loans, or credit card debt, are considered and also often divided up during the dissolution of a marriage.
“While it may seem unromantic, items like prenuptial and postnuptial agreements, as well as trusts and wills, are critically important to have done and regularly reassessed during a marriage,” Majed says. “They become even more important when you start having kids, as well.”
In our 50s, 60s, and Beyond
Fiction: Thanks to all my hard work and success, it’s time to downsize and enjoy!
Fact: “Sure, you’ve worked long and hard—but that does not mean you can simply collect on retirement and just sell off unnecessary assets, like a large family home, as needed to replace your regular paycheck once you hit a magic age,” Majed says.
The truth is there is an art and science to liquidating savings, investments, and other assets, and timing is critical.
“Without planning, women may run the risk of taxes and penalties that can add up to a considerable amount,” Majed says. “Similarly as critical—understanding your tax bracket, which will most likely be lower, due to a lower income, once you retire.”
Fiction: My estate will automatically go to my kids.
Fact: “Never assume anything—especially when it comes to distribution of your assets after you are gone,” Lackey says. “Many women assume their estates will automatically go to their spouse and/or children, but without an actual will, anything can happen.”
Like what?
For example, according to Lackey, other relatives or even the state can get involved in many cases.
“And what happens if you or your spouse remarry without a will; that compounds things, especially with adult children and grandchildren in the mix,” Lackey says. “You need to protect those you love, not to mention yourself.”
Knowledge is power.
“Get educated. Get informed. Get help if you need it,” Sanchez says.
“When it comes to saving, if you don’t set up a savings strategy early, you could miss a chance at earlier retirement and financial security.”