Setting clear financial goals for women executives: Why do it?

As with any goal-setting process, writing down your goals is an important first step in planning for the future.

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We are still paid less than men, so our money has to go farther: 2017 figures show that women are paid about 82 cents for each dollar a man makes, based on median salaries for full-time workers. That translates into a woman having to work about four more months per year to make the same annual salary as a man.

We live longer than men and health care costs in retirement continue to rise: The average male life expectancy is about 76.5 years while a woman’s is a little over 81 years according to research by the World Health Organization and Imperial College of London. According to the Society of Actuaries, 1 out of 2 women who are in their mid-fifties today will live to be 90. Greater longevity is one of many reasons women aged 75 and older are almost twice as likely to live in poverty versus men of the same age.

Of course, one of the biggest financial risks, as we age, is the cost of healthcare. Fidelity’s Retiree Health Care Cost Estimate finds the average health care costs per couple in retirement will total $280,000 after tax, not including the cost of long-term care.

To provide greater security: Life is uncertain and being unprepared leaves women at the effect of, instead of being in control of their circumstances. It’s also common for women to be fearful about their future, especially when they’re unclear about their financial reality. Perhaps fear is warranted considering some of the statistics – according to the US Census Bureau, the average age of a widow is 59 years old and 3 out of 4 married women are widowed by the age of 75.

The threat of divorce is also real with 25% of divorces now involving couples over the age of 50. According to Pew Research, the divorce rate of couples over 50 has doubled since the 1990s. In some cases, discomfort caused by these uncertainties motivates women to be more engaged before something unfortunate occurs.

How to set clear goals

Put structure around your goals: As with any goal-setting process, writing down your goals is an important first step in planning for the future. We suggest that before you dive into the detailed numbers, you articulate your vision for retirement. If you’re in a partnership, take time to come to an agreement on a shared vision of your retirement life.

Consider questions such as ‘Where will we live? How will we spend our free time? Will we work part-time? If you face some challenges in having this discussion on your own, a good financial advisor can usually help create a neutral place to talk about differences so you can agree on how to move forward.

Write down the life goals you want to achieve:

  • Taking nice vacations every year
  • Funding children/grandchildren’s education
  • Retiring early
  • Live in your dream location
  • Buy a vacation home
  • Give generously to personal causes
  • Leave a legacy to your children

Complete a financial plan. At a minimum, your plan should include:

  • Net Worth statement
  • Current investment allocation
  • Cash flow needs during retirement
  • Long-term analysis of cash inflows, outflows and wealth accumulation
  • Ideally, a Monte Carlo analysis to get a better idea if your retirement is sufficiently funded or if additional savings are needed after taking into account potential market volatility
  • Sources of income to include guaranteed income such as pensions, annuities, Social Security and variable income such as brokerage accounts, IRAs, 401ks
  • Estimate of future taxes owed on tax-deferred savings such as IRAs and 401ks
  • Stress test your plan for a variety of “what if” scenarios like early retirement due to a layoff or poor health, high medical costs, supporting a child or parent in need, financial changes should you delay retirement, etc.

Finally, learn from general advice but remember that there are over 40 dimensions of wealth that you should consider before making your financial decisions. My colleague, Dawn Doebler, CPA, CFP®, CDFA® explains these Dimensions of Wealth and the effect on individual financial goals and plans.

Make sure your advisor stacks up

To be honest, the financial services industry does not make it easy to understand who has the right expertise and experience to provide the services and advice that each person may need. Not all financial advisors offering “comprehensive” financial planning provide the same level of service.

For example, someone who works for a start-up company about to go public needs a team of advisors with a lot of experience in stock options and grants, tax planning, estate planning, investment management and, perhaps, philanthropic planning, if they stand to make a lot of money from their company stock and would like to fund their charitable causes. In this case, the expertise of the team should include CPAs, attorneys, Certified Financial Planner® (CFP®) professionals, Chartered Financial Analysts (CFAs) and others depending on the client’s needs beyond handling the complexities of their equity options. It’s rare, if not impossible to find all of this expertise in just one financial advisor.

Another person may be going through a complex divorce. Working with a divorce mediator or attorney is a good first step but they may want to consider hiring a financial advisor who specializes in divorce – a Certified Divorce Financial Analyst (CDFA®). These specialists generally have seen many divorce situations as they advise their clients going through a divorce, so they bring experience and objectivity to an emotionally packed situation.

Someone with significant wealth may need the services of a family office to help them manage their day-to-day finances, as well as their longer-range investing. These families may look to their advisory team to help them communicate their values to their children and other heirs and help prepare them to be good stewards of their wealth as it is passed on to them. These families also require more advanced investment strategies along with tax and estate planning solutions that protect and preserve their wealth for future generations.

It’s up to the individual to do their homework, ask questions and ask to speak with referrals who have a similar situation before making a decision.

Create a customized investment plan

It may come as a surprise to know that a recent Women and Money survey by Fidelity found that women are, in fact, better investors than men. After reviewing over 8 million client accounts, Fidelity found that women investors earned 0.4 percent more than men, and they are saving more than men too. Over time, when these small percentages are applied to increased savings and investing, it can add up to significantly more money.

While this is great news, they also found that women tend to take less risk. Given the results of the study, you would think that’s a good thing, right? The answer is, that depends. The better question is, “Are women taking appropriate risk given their goals for their money, their need for income in retirement and their stomach for risk?”

Keep in mind that a portfolio needs to provide a sufficient return to overcome taxes and inflation. In order to do so, investors will continue to need a healthy dose of equities into late retirement.

As human beings, our natural tendency is to run to the safety of shore when the seas get rough and jump into the ocean when everything looks calm. However, these actions usually create a pattern of “buying high and selling low”, resulting in poor investment performance. We urge investors to adopt and stick to an asset allocation policy that makes sense for the long term. Tactically adjusting for current market conditions can add performance but drastic shifts often lead to underperformance.

The best way to invest appropriately is to have clear financial goals and create a customized plan that has the best chance to get you there.

Nadine Gordon Lee, CPA/PFS, CFP® is the co-author of Personal Financial Planning for Executives and Entrepreneurs: The Path to Financial Peace of Mind. She is the Managing Director of The Colony Group’s Metro NY Offices and President of the Colony Group Family Office. During her more than thirty years in wealth management, Dina has advised wealthy families, corporate executives and owners of closely held businesses.