Why women need to plan differently than men

Fidelity's Christin Haley shares her perspective on financial planning for women.

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Key takeaways

  • Women need to plan differently than men for a number of reasons, but primarily because of a longer life expectancy, the potential for lower earnings, and increased expenses in retirement.
  • It's important for women to engage as early as possible in the financial planning process, so they know what is involved in maintaining and improving their quality of life.
  • Securing a long-term care plan can be especially important for women because of longevity and their propensity to be caregivers for others.
  • Properly documenting your wishes for both your health care needs and your assets can give you power over your own circumstances.

Financial planning for women has been considered by many a "niche" opportunity, but I never saw it that way.

Women make up over half of the population and control $22 trillion, which is half of the wealth in the United States. Further, by 2030 it is estimated that women will control 2/3 of the nation's wealth, due to organic growth and intergenerational and spousal transfers.1

That's both a huge responsibility and a huge opportunity. We have to be ready for it.

People may wonder how planning is different for women versus for men, or different from planning in general. After all, there aren't separate strategies, techniques, or documents that are specific to women. Further, no 2 men, 2 women, or 2 married couples will necessarily have the same exact attributes or goals, so it is critical, regardless of who we are planning for, that a plan reflect an individual's specific situation.

Statistics show, however, that the unique attributes of women investors can dramatically affect our finances. The key differences:

  • A longer life expectancy: On average, women live 4 to 5 years longer than men, resulting in a longer time horizon for which to plan. Those who are married, on average, outlive their husbands by approximately 14 years. As of 2015, 48% of women age 75+ were living alone compared to 22% of men.2
  • The potential for lower earnings: Women may also ultimately earn less money, when considering both the gender pay gap and the potential that our work lives may be interrupted for caregiving.
  • Increased expenses in retirement: If women are living longer and/or outlive their spouses, we can anticipate increased lifetime living expenses, including medical costs and possibly even assisted living or nursing home expenses. Even as women may be tasked with caring for others, they need to plan for their own care as well.

These are some of the key elements that I've found women need to understand about their financial wellbeing:

Engagement matters

It can make a huge difference and improve our chances of success if we get involved in the financial planning process as early as possible. I got my own start managing my money when I was in high school, working several jobs. It has always been a point of pride for me to be able to say that I could support myself if something happens. I'm also looking to help my children learn similar lessons. While at 11 and 13 they are too young for jobs at the moment, we talk about how they can balance spending and saving the money they receive as gifts.

On the other hand, the complications that can arise when women are not engaged early can be costly. One married couple, for instance, had a complicated estate plan that required a lot of attention to detail as to what would happen when one of them died. Unfortunately, the wife was not engaged during the estate planning process and did not understand how their plan was designed. Consequently, after her husband's death, she was not aware of the steps she needed to take, and now she's going through a lot to unwind the consequences.

There are a lot more educational resources online nowadays to help women do their own investment research, but you have to make the time to do it and follow through. You also have to feel that you have the information you need to make decisions.

Tip: Read more in our Women Talk Money section.

Secure your own life raft first

A long-term care plan is so important because of women's longevity and our propensity to be caregivers. One client expressed this: "I have taken care of my family my whole life. When I get old, who takes care of me and how do I pay for it?" This concern is echoed by many women no matter their age or wealth.

Women, just like men, should have a plan in place to authorize someone to speak on their behalf in the event they are unable to do so themselves. They should name someone they trust to understand their values and follow their wishes. Women, just like men, can achieve most of this with some core financial planning documents, like a power of attorney, a health care proxy, a living will, and a HIPAA authorization.

Next, women should consider what their costs might be over retirement, and consider whether it would make sense to self-fund the costs from assets or perhaps purchase a long-term care policy.

No matter the decision, it's important to include key family members. As women, we spend considerable time caring for others and naturally want to ensure that our loved ones are prepared for the "what if" moment of when something happens to us. A family conversation may be emotional, but it is critical that our families understand our wishes and are a part of our decision-making process.

For example, a woman my team recently spoke to illustrated this point, because she was at cross-purposes with the plans her daughter was making. The woman had an active lifestyle with her friends and didn't want to move or, in her words, burden her daughter with caregiving. At the same time, her daughter was planning to move into a bigger house so her mom could live with her. She ultimately felt the stress on her daughter would be lessened through a long-term care policy.

Formalize your plan

No matter what your gender, planning for the long haul also means thinking about our wishes for passing along wealth after we die, whether to heirs or to charity. If we don't plan in some formal way with all the proper documents, we can't be sure that our wishes will get carried out.

Another example is a woman who had been divorced for several years, had 2 teenage daughters who she named as beneficiaries of her life insurance policy, and was an independent investor who planned on her own. She died suddenly, and because both children were still minors when she passed, they could not take ownership of their interest in the death benefit. The ex-husband petitioned the court and was appointed as conservator to manage the girls' shares of the proceeds. Given the contentious nature of their divorce, it is unlikely that she would have wanted the ex-husband to manage her assets for the girls. Had she engaged earlier in the planning process, a financial professional may have talked to her about the benefits of updating beneficiaries and potentially leaving the life insurance proceeds in trust, with a trustee of her choosing named to control the assets for her children.

Even in my own family, as grandparents passed away and their spouses remarried, I have seen the repercussions of poor planning impact my parents and their siblings. My observations over the years motivate me to help people discover the ways they can manage their financial futures and pass assets to heirs according to their wishes.

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