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Women and Financial Success

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Unique challenges women face as they prepare for and live through retirement.

Published in: Economy & Finance
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Women and Financial Success

  1. 1. Women and Financial Success PRESENTED BY MIDWESTERN FINANCIAL GROUP PATRICK CAMPBELL & JOSEPH JAY, CFA 1
  2. 2. Agenda  Briefly address “Gender Retirement Gap”  Basic Tenants of a Successful Financial Future  Calculating savings required to meet future financial goals  Savings vehicles to help accumulate assets  Tools to help manage your finances  Q&A 2
  3. 3. Gender Retirement Gap  Women need to save more than men in order to have same amount of assets at retirement and through retirement  Two New Graduates; same job, same starting wage 3
  4. 4. Reasons For Gender Retirement Gap  Fewer years in the workforce – 75% of the years men work  Advanced studies, children, elder care of parents, etc.…  Fewer years in workforce impacts savings  Lower Social Security benefits  Gender pay gap – 78 cents on the dollar  Showing signs of gradual improvement  Women tend to be more risk adverse than men  Risker assets improve returns over time  Recent research illustrates women more risk aware 4
  5. 5. Gender Retirement Gap, Cont.  What we have discussed thus far only applies to same standard of living to male counterpart up to retirement  During retirement, women tend to spend more  Women consistently live longer  Sole Provider late stage in retirement  Higher healthcare costs for women – 18% more  Need to plan for this reality 5
  6. 6. Basic Tenants of Financial Success  Basic tenants of a successful financial future  Spend less than you make  Invest early and often  Understand risk and its relationship to your tolerance and goals  Have a plan in place  Financial success takes discipline 6
  7. 7. Spend Less than you make  Must pay yourself first  Funding a future liability  Have a budget in place  See Sample budget  Use resources – Mint, Personal Capital  Review monthly budgets vs. actual spending  Put in place a system of accountability  I.e., recurring monthly review with spouse or significant other 7
  8. 8. Invest Early and Often  Investing earlier allows you do reduce amount your saving  Saving early and often allows you to maximize opportunity of compounding  Time can be your best friend or worst enemy  Playing catch-up is hard to do  Illustrations – next two slides 8
  9. 9. Invest Early and Often, Cont. 9
  10. 10. Invest Early and Often Cont.  Hypothetical: Emily and Dave. Emily saves $200 per month into 401k beginning at age 25 earning 6% per year. Dave starts saving $200 per month into his 401k, earning the same return of 6%, but starts at age 35. Both continue to add $200 per month until 65 years old. 10
  11. 11. Understanding Risk  Taking greater risk improves outlook  Two traditional asset classes – Stocks and Bonds  Stocks 9.53% Annual Return  Bonds 4.91% Annual Return  Stocks carry much greater risk, but diversification can be your friend  Would you rather earn a smooth 5% or a lumpy 9.5% 11
  12. 12. Understanding Risk, Cont.  Risk tolerance has two dimensions  Capacity  Time horizon, stability of income, age, required rate of return to meet your goal(s)  Willingness  Ability to accept losses/volatility, emotional and cognitive biases  Being risk aware is important to your success  Portfolio mix should mirror tolerance for risk 12
  13. 13. Have a Plan in Place  A proper financial plan will address the following  Your financial goals  i.e., maintain current lifestyle through retirement  Your risk tolerance – capacity & willingness  Your current financial position  Net worth  Current savings rate  Taxation  Required annual savings rate and return to meet your financial goal(s)  Other sources of future income (Social Security) 13
  14. 14. Saving for Retirement  Basic Rules of Thumb  Will want to replace 70% of current income, adjusted to inflation  Save 15% of gross wages per year once you begin working  Caveat: rule of thumb can fall short. Everyone’s situation is different  Hypothetical:  A 40 year old female earning $45,000 today  She plans to retire at 70 years of age  Wants to plan on replacing 70% of current income (no more mortgage)  Currently has $97,000 in her 401(k) with $4,000 annual additions per year  High capacity for risk and average willingness given her age 14
  15. 15. Saving for Retirement, Cont.  Assumptions  Pre-tax income required in retirement $76,459  $45,000 income, adjusted for 3% annual inflation, over 30 year period @ 70%  Annual portfolio return of 7% pre-retirement  Annual Social Security income of $26,625  We have reduced projected figure of $35,500 by 25%  Will begin social security benefits income at retirement age of 70  Ending balance (FV) at time of retirement of $1,245,850  Needs to support safe withdrawal rate of 4%, adjusted for annual inflation  Needs to support pre-tax withdrawals of $49,834  Income required – Social Security Benefit ($76,459 – $26,625)  Not adjusting for difference in taxation from pre to post-retirement 15
  16. 16. Saving for Retirement, Cont.  Solve for required annual savings needed in order to ensure you can maintain your same standard of living in retirement with little to no concern of outliving your assets  Future Value of assets = $1,245,850  PMT = X  Rate of Return = 7%  Present Value of Portfolio = $97,000  N = 30 years of saving  Required annual savings to meet retirement goal = $5,372  An increase of $1,372 in annual savings to maintain lifestyle in retirement 16
  17. 17. Various Savings vehicles  401k’s, 403b’s, SEP’s, Simple IRAs, Roth IRA’s, Rollover IRA’s, oh my...  401(k) – McGrath Auto  Pre-tax retirement savings vehicle  Money grows tax deferred; taxed upon withdrawal  2017 maximum $18,000 annual employee deferrals  Plus $5,500 catch-up for those 50+  Roth IRA  Income limitations begin at $118,000 (single), 186,000 (married)  Post-tax savings vehicle  Money grows tax free; no future taxation  2017 maximum contribution limit is $5,500  Plus $1,000 catch-up for those 50+ 17
  18. 18. Various Savings Vehicles, Cont.  When saving for education  529 Accounts preferred vehicle  Underutilized  Qualify for state tax deduction on contributions of $3,239 per spouse per beneficiary (child)  Maximum annual additions 0f $14,000 per spouse per beneficiary  Contributions grow tax free as long as they are used for qualified college expenses  Tuition, books, support material and technology, ‘reasonable room & board  A 10% penalty and income tax will be applied to unqualified withdrawals  Retain ability to change beneficiary at your discretion 18
  19. 19. Tools to Help Meet Your Goals  Budgeting Apps  Mint  Personal Capital  Financial Calculators  Schwab MoneyWise  http://www.schwabmoneywise.com/public/moneywise/tools_resources/calculators_w orksheets/calculators  Examples: credit card payoff, retirement savings, etc.  Vanguard Tools & Calculators  https://investor.vanguard.com/investing/investment-calculator  Retirement planning, education savings, investment vehicles, etc. 19
  20. 20. Final Thoughts  What you can do today  Record your financial goals  Begin understand what’s required to meet those goals  Use tools or seek professional assistance  Ensure you have a plan in place  Goals evolve, as do your circumstances. Review and maintenance is key  Success requires discipline and a system of accountability 20
  21. 21. Midwestern Financial Group  Beginning Investor Program  Designed for those beginning to invest or have yet to establish a financial plan  Pricing  Individuals $199 one-time fee  Couples $349 one-time fee  Contact information for Midwestern Financial Group:  Email: service@midwesternfinancial.com  Phone: (319) 499-1620  Website: www.midwesternfinancial.com 21
  22. 22. Disclaimer Midwestern Financial, LLC (“MFG”) is a registered investment adviser offering advisory services in the State of Iowa and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. The presence of this website on the Internet shall not be directly or indirectly interpreted as a solicitation of investment advisory services to persons of another jurisdiction unless otherwise permitted by statute. Follow-up or individualized responses to consumers in a particular state by MFG in the rendering of personalized investment advice for compensation shall not be made without our first complying with jurisdiction requirements or pursuant an applicable state exemption. All written content of this presentation is for information purposes only. Opinions expressed herein are solely those of MFG, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. Past performance is not indicative of future results. 22

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