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Women and wealth

Do women, who are about to control most of the nation’s wealth, need more of a wealth-building mindset?

Strategy for long-term savings: Financial experts say women need a wealth-building game plan that takes into account the pay gap, more time away from the labor force to care for children and elderly parents, and longer life spans.

Strategy for long-term savings: Financial experts say women need a wealth-building game plan that takes into account the pay gap, more time away from the labor force to care for children and elderly parents, and longer life spans.

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From the pages of In Business magazine.

Should a woman’s financial playbook become more aggressive? As wealth changes hands over time, one influential financial expert and best-selling author thinks it’s imperative.

Jean Chatzky, the financial editor of NBC’s Today show, believes women tend to be more risk-averse investors, opting for safety, security, and stability more so than men do. In her most recent book, she makes the point that women are about to inherit roughly 70 percent of the $41 trillion in intergenerational wealth that’s expected to be transferred over the next 40 years, and they will also control the vast majority of wealth in the United States and globally due to this intergenerational transfer.

Yet because women have earned less, and still do, than men, and they live longer — the latest data from the Centers for Disease Control and Prevention shows that American women outlive their male counterparts by five years (81.1 years to 76.2) — and they are more likely to be the spouse or partner that takes breaks from the labor force to care for children and aging parents, Chatzky believes they need less risk-averse investment strategies.

We decided to get a local take on that assertion with the following Madison-area financial advisors: Jeff Collins, vice president and trust officer in the wealth management division of State Bank of Cross Plains; Emma Mueller, a financial consultant for Park Capital Management; and Shayna Borakove, an estate planning attorney with the Borakove Osman law firm. We also spoke to Tami Kellar, associate vice president-private banking for Park Bank, to get the view of an individual investor.

Risk-averse women: Stereotype or spot-on?

Do women really invest more for safety, security, and stability? If they do, is that a bad thing? Collins doesn’t accept this, noting that risk-tolerance is a very personal thing. “I haven’t really found that to be true,” he states. “Risk tolerance is a real personal feeling toward the risk of loss of money. I think it’s probably pretty equal in terms of men and women willing to take a little bit more risk to potentially get more growth and more gain.”

Collins, however, does not quibble with the need for women to start early to make up for factors such living longer and earning less, allowing the clock and the so-called magic of compounding to work for them. According to Collins, life expectancy probably hits home for most people around the age of 55. By that point, most people start to take a serious look at their financial picture, and the factors that go into that calculation are their predictable, stable sources of income (Social Security, pension, and so forth), their preferred retirement lifestyle, and the amount of money they need to fill any gaps. “Things become more of a reality at that point,” he states. “People get a much clearer picture of what they need to do over the next 10 years, maybe the last 10 or 15 years of their working lives, to put it all together.”

As Collins notes, when you’re young, it’s easy to focus on lifestyle needs in retirement and neglect medical and care expenses. We simply don’t think about the reality of higher care needs when we’re old, when most of our health-care spending will occur. “With respect to life expectancy, starting early is definitely a consideration — not only for income purposes, but for care purposes with nursing-home expenses and health-care expenses,” he notes. “Typically, women, if they need care, will spend more time in a nursing facility or receiving home health care or skilled care than a man would.”

Mueller cites a “gender-investment gap” even as she sees a lot more interest in investing among women as they either re-enter the workforce or gradually take on roles and earn higher pay than men. Achieving equal pay for equal work has been like turning around a large ship in a confined space, but as more progress is made, that gap should close. “I still think they are a little bit less aggressive investors than men, due to a lack of financial literacy and a lack of confidence because it’s fairly new to a lot of them, so again we tend to be a little less aggressive, keep more in cash or in the banks, and not have a relationship with a financial advisor,” Mueller says. “The whole concept of financial [understanding] for women is fairly new and it’s not as talked about, and often times they have relied on a working spouse to manage finances and invest in the past.”

When it comes to identifying stereotypes, Borakove turned the tables. The flip side of the risk-averse coin, she notes, is too much risk. “With investments, if you are making emotional decisions, then you are being riskier and that’s not what women are doing,” she states. “We’re thinking about the long term. When I work with a client as part of estate planning, I talk to women and remind them that estate planning is not just about when somebody passes away. You have an estate during your life.”

Women get this, and they know that money and investment are not all about a number, Borakove says. They don’t have “gain theory” when talking to an estate planner. They have a goal theory and they have a relationship theory driven by the following question: How is this money going to affect my family? “It’s not that we’re risk-averse,” Borakove states. “We want to achieve our objectives because we’re family-forward, and so this stereotype can have good elements. Women are stereotypically risk-averse and have a conservative investment ideology because we’re thinking about the long-term.”

How much is enough?

How do people know they are saving and investing enough? Is there a certain percentage of income that people should be saving annually and by various mile markers in their lives? Saving and investing aren’t easy things to do, especially for younger people saddled with college debt, but most advisors suggest putting aside 15 percent of their annual income, including 401(k) contributions and the employer match. “For most people, that would be a pretty solid number,” Collins states.

Taking the longer view, Mueller says that in your 30s, it’s good to have saved one times your annual salary, two to three times your salary by the time you’re in your 40s, five to six times in your 50s, and eight to nine times in your 60s. To do that, she notes that it helps to work for an employer with a retirement plan, especially if you’re getting back in the workforce.

“That’s the easiest way to start saving for retirement,” Mueller states. “It starts a discussion around investment because a lot of times when you open up a 401(k), it’s tied to a custodian where there are investment options available. So, often times that tends to be the very first place some women that are starting in the workforce see investing, aside from the bank accounts and investments they may have outside. So, take into account the company 401(k) and a company match.”

Mueller echoed Collins, advising people to save about 15 percent of their annual income. “So, if you put 10 percent in, and the company matches at 5 percent, you’re already there,” she notes. “If you’re at 6 percent, increase at least 1 percent per year at rate time. If you’ve never done it, start small and then increase it from there. So, the 401(k) is the place to get back in, as far as investing is concerned.”

Mueller also recommended shedding high-interest debt — such as credit-card debt — establishing an emergency fund of three to six months’ worth of expenses, forming and sticking to a budget plan and, just as importantly, setting a goal that factors in when you want to retire and how much you want to spend in retirement “Having that discussion, not necessarily that I need x-millions of dollars or whatever that may be, but what do you want to spend in retirement? That’s where financial advisors can come in and talk about different ways to get there.”

Mueller recommends a well-diversified portfolio — balanced between stocks, bonds, and cash -— and periodic review. If you’ve started early enough and you’re approaching retirement, review your investment allocation to determine if it should be adjusted to become a bit more conservative and preserve the wealth you’ve built.

“And then there are discussions as far as inheriting assets from parents,” she adds. “If you already have a small investment that you started on your own, you start to understand how that’s worked, and then you start to implement and integrate other assets that you may be inheriting into that.”


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