By Mary Ann Ferreira
Investing
Before creating a sound investment plan, you need to take the time to do some life planning. How do you envision your life? What are your needs, wants, and wishes? You may have short-term goals such as next year’s vacation, or longer term goals, such as purchasing a home, sending a child to college, or saving for retirement. Your investment plan should be based on your goals, the amount of time you have to pursue them, and your comfort with investment risk. In other words, your investment plan should be unique to you.
Growth-oriented investments, such as stocks, may be appropriate for your long-term goals. Income-oriented investments, such as bonds, may be appropriate for your short-term goals. Once you have an investment plan suited to your personal goals, sticking with your plan is critical to achieving those goals. Don’t let short-term fluctuations in the market cause you to derail your investment plan. Your plan should change only when your goals or life circumstances change.
During major transitions, your goals (as well as your investment plan) should be re-evaluated. Certain stages of life—such as marriage, real-estate purchases, having children, parental care, health issues, and, of course, retirement—are key times when your goals, and possibly your investment plan, need to be reviewed. Just as you need to review and change your exercise plan occasionally, your investment plan should be reviewed when such events happen, but no less than annually.
Insurance
Having the right insurance at the right time in your life will protect you and your family. All women should have disability, health, and homeowner’s insurance. Women with dependents should also have life insurance, and women over 50 who have significant assets should consider purchasing Long-Term Care insurance.
Unfair as it might seem, women pay a significantly higher rate for long-term disability insurance than their male counterparts. Statistically, women are much more likely than men to develop some type of disability that prevents them from working. Arthritis and rheumatism are the most common disabilities affecting women; however, heart disease, cancer, mental health issues, diabetes and nervous system disorders are also leading causes of disabilities in women. Long-term disability insurance replaces a portion of your income if you become too ill or too injured to work for an extended period. Many companies will provide their employees with some disability insurance, but you may need additional insurance.
A comprehensive health insurance plan is an essential component of financial fitness. If your employer doesn’t provide it, and you can’t afford a comprehensive plan, you should at least consider a catastrophic health insurance policy to cover a medical crisis. Once retired, you can apply for Medicare and then decide which Medigap or MedAdvantage plan best suits your needs.
Homeowner’s insurance is required by mortgage lenders, but even if your home is paid for or you rent an apartment, insurance is essential. Typically, your home is your biggest asset, so you want to make sure that its value is covered.
Sufficient life insurance should be purchased to cover all debts, such as mortgages and student loans. If you are single and have no dependents, you do not necessarily need life insurance. While working, that money should probably be spent on disability insurance.
Unless you have enough money to “self insure,” Long-Term Care insurance is a means to pay for long-term care services such as home care and nursing home care. LTC coverage can give you more freedom to select what type of services you need.
Retirement needs
Because women face special challenges when planning for retirement, it is important that they make retirement planning a priority. Women often have their careers interrupted to care for children or elderly parents. As a result, many women spend less time in the workforce and/or earn less money than their male counterparts. To complicate matters, women typically live longer than men, and therefore have to stretch their retirement savings and benefits over many more years. For all of these reasons, saving for retirement really needs to be a high priority for women.
It’s never too late to start saving for retirement. If you contribute the maximum allowable amount into a deferred income plan such as a 401(k), you can build up a good portion of your retirement savings that way. Such plans reduce current taxable income, and allow your investments to compound tax-deferred. Many employers will even match a portion of what you contribute.
If you are staying at home to raise your family, you can still save for retirement. If your spouse has earned income that covers the contributions, you can contribute to either a traditional IRA or Roth IRA, as long as your spouse has enough earned income to cover the contributions.
How much do you need? This is a common question. At age 65, a woman can expect to live an additional 20.3 years. Many women, however, are living well into their 90s—and beyond. For married women, the loss of a spouse usually means a decrease in retirement income from social security and pensions. And roughly half of all women 75 years of age and older are living alone.
You can start by estimating how much income you will need in retirement. Your budget and current expenses (with some modifications) can be used as a starting point. Then, estimate how much you will receive from Social Security (you can obtain this number at www.ssa.gov), pension plans, and other sources. The gap is your retirement savings goal, and just knowing that info will motivate you to start saving. Save as much as you can, and always look for ways to increase that savings through bonuses, raises, etc.
Estate planning
All people, not just those who are wealthy, have an estate. The estate consists of everything you own: your home, vehicles, real estate, life insurance, brokerage accounts, retirement accounts, savings accounts, personal property, and even your furniture. You want to be the one to decide who inherits your estate. If there is no will then the laws of your state prevail and the state determines who inherits your assets—both financial and otherwise. Your special pieces of jewelry or paintings, for example, may be given to family members who will not appreciate them. A properly created will can prevent that.
Although a will is important, there is more to estate planning than just having a will. Proper planning includes appointing individuals to make personal, health care, and financial decisions in case of incapacity. In addition, guardians may need to be appointed to raise minor children to adulthood and trustees to manage their inheritance. Don’t leave such things to the state/courts to decide. In addition to a will, estate planning documents you should have may include: Financial Power of Attorney, which appoints someone to take care of your financial needs if you become incapacitated; Health Care Directive (also known as a living will) which sets forth your intentions regarding end-of-life health measures; and Power of Attorney for Health Care, which appoints an “attorney in fact” to make critical decisions about your health care when you are mentally incapacitated.
Another consideration is whether or not you would like to avoid probate. Probate is the judicial process that determines the validity of your will, inventories your estate, and transfers the assets of the estate to your heirs once all the taxes and debts have been paid. To avoid probate (which has public access), you may wish to use several planning tools. A Revocable Living Trust is a vehicle that holds your assets, while allowing you, as trustee, to keep control of those assets. Upon your death, the trust becomes Irrevocable, and is managed (and possibly distributed) by your appointed successor trustee. Joint ownership of real or personal property will also avoid probate by transferring title directly to the surviving joint owner upon your death. “Payable on death” or “transfer on death” designations can be added to brokerage and bank accounts; these transfer rights on the accounts upon your death directly to whomever you name (similar to beneficiaries on your retirement accounts).
There are many components to an estate plan, and it is a large part of your financial fitness. It is imperative that you act on this, and that you have an estate attorney review your situation.
Financial plan
A comprehensive personal financial plan will help you pull the above topics together in several ways. It can help you identify your personal goals and objectives, prioritize and assess your current financial situation, and identify/quantify changes that are warranted. Together with your adviser, you can develop a plan that positions you for a lifetime of financial fitness.
Mary Ann Ferreira is an adviser and partner at Viridian Advisors. She is a Certified Financial Planner practitioner and a Certified Divorce Financial Analyst with expertise in the financial aspects of the divorce process. Her passion is to create a positive client experience, especially for women and their families in the Pacific Northwest
