Financial Planning Needs for Women

Fahzy Abdul-Rahman, Ph.D., M.P.H.

New Mexico State University

For New Mexico Conference on Aging 2011

Outline New Normal Retirement Need for Women Financial and Retirement Planning What to Do?

New Normal

Economic conditions

New Economic Reality?

Characteristics of the “New Normal”

An extended period of:-

• Slow U.S. economic growth: GDP growth < 2%

• Low single-digit average annual stock returns

• Stubbornly high unemployment levels: 9.1%• Precarious job security (public and private sector)

• Youth, <25: 24%• College debt --- Next financial crisis wave

• Tightened credit standards

• Declining asset values (e.g., housing)

• Increased precautionary household savings and debt repayment

• Decreased household spending

Retirement Need for Women

Personal Finance Foundation

Women: Demographics• Life expectancies (2005): Men (75.2 years) and

women (80.4) For couples of the same age, this means that women are

expected to spend their last five years being a widow. husbands are still almost ½ year more educated and about 2 ½ years older than their wives.

Impact of the health care costs• Widower among men (4%) vs. widows among

women (12%) Homeownership: 81% of widows vs. 67.8% nationally

• Average marriage span of 8 years single working mother issues: custody, childcare, and

debt issues

Women Earn less: 77.8 cents for every dollar men

earn Less likely to have retirement plan:

Tend to work in part-time jobs or for employers that don’t offer retirement benefits

Fewer have defined-benefit pension plans. And those with plans have smaller pensions

because of less time in the workforce. Women are also less likely to participate in 401(k)

plans because of lower compensation.

Women More likely to take career breaks / provide for

others before themselves Children Elderly parents (in laws)

Lower potential earnings over lifetime Due to above:

Lower wage, more familial responsibilities, 11 years out of the workforce due to childbirth and

care giving to children and frail elderly (Brennan, & O’Neill, 2004).

Women Women have lower Social Security benefits

Lower income and less time in the workforce also means lower Social Security income

In 2007 unmarried elderly (age 65+) woman, SS comprises

48% of their total income unmarried elderly men : 37% and elderly couples: only 30%

Fared worse in financial planning knowledge Performed worse than men in financial literacy

questions on compound interest, inflation, and especially stock risk diversification (Lusardi and Mitchell, 2008).

Women: Eventually, …

As pointed out by Brennan and O’Neill (2004), as high as 90% of women will need to be in charge of their financial management at some point in their lives.

Financial and Retirement Planning

The Basics

Personal Finance Basics Delayed Gratification

Marshmallow Experiment (1960s) Wants vs. Needs

Buy only what you heed Do you know which one is wants vs. needs? New normal needs for new normal economy

Personal Finance Planning

The Five-Step Financial Planning Process

SMART Goals

Specific……..

Measurable…

Time-Limited..

Realistic…….

Attainable…..

“Pay for lodging, transportation, meals for a 5-day trip to Washington, D.C.”

“$300 through fundraising, $50 from birthday money, save $25 a week.”

“If I stick to my plan, I’ll have the money when I need it.”

“I still have enough money to live on while I work toward this goal.”

“I need to have all the money by 6 months from now.”

Smart Goals

What to Do?

React

What To Do?1. Make retirement plans a priority when you

consider a job2. Work as long as you can at the highest

salary you can3. Understand the effect on Social Security

benefits of divorce and remarriage4. Put money away for retirement on a regular

basis5. Learn about your finances

All Bad for Women?

More likely to seek the advice of financial planners

Resources & Financial Advice

Own research Hire professionals

Certified Financial Planner® (CFP®) Chartered Financial Analyst (CFA®) Certified Fund Specialist (CFS) Chartered Financial Consultant (ChFC) Certified Investment Management Analyst (CIMA) Certified Public Accountant and Personal Financial

Specialist (CPA and PFS) Selecting Investment Professionals (FINRA)

Financial Planning Needs for Women

Fahzy Abdul-Rahman, Ph.D., M.P.H.

New Mexico State University

For New Mexico Conference on Aging 2011