Tag - Donna M. Phelan

New realities for retirement for women

By Donna M. Phelan, MBA

Although it is improving, there is an economic cost to being a woman that reverberates into retirement. It results from multiple long-term socio-economic conditions.

The first is that women have consistently earned less than men, and real wages have stagnated.  Currently women earn about one-fourth less than men.  The disparities are even greater for black women, who earn about 30 percent less and Hispanic women, who earn about 40 percent less (census.gov). The Center for American Progress calculates that over a forty-year career life, that difference may add up to $300,000 for lower earners, $431,000 for average earners and $723,000 for higher earners.

Women are also less likely than men to start their careers in, or get promoted to management positions.  A March 2010 Catalyst article in the Harvard Business Review reports that “women continue to lag men at every single career stage, right from their first professional jobs.”  Women comprise only 5 percent of CEOs of the Fortune 500 companies.  A 2014 Grant Thornton International Business Report survey, featured in the March 6, 2014 issue of Forbes, found that the number of women in senior management has “stagnated” at 24 percent since 2007. This means that most women miss out on the majority of lucrative executive benefits that may help secure their retirement.

An August 14, 2013 article in the Wall Street Journal, quoted an Aon Hewitt study, which said that the 401(k) gender gap is even bigger than the gender pay gap. The study showed that the average man’s 401(k) savings was $100,000 dollars.  The average woman’s 401(k) retirement saving’s was $59,300 dollars– a full 40 percent less.

Women are more likely to leave the workforce for childcare and eldercare.  This redirects their resources of time, money and energy away from retirement saving.  It also hinders career progress.  Studies by Claudia Goldin of Harvard show that when women reenter the workforce, they permanently lag behind in pay and promotions.

Women who leave the workforce for caregiving also incur consequences for Social Security. Women receive about one-fourth less than men in Social Security benefits, $13,236 versus $17,004. Nearly 30 percent of women over age 65 rely on Social Security for virtually all of their income, a rate that increases with age. The percent of women older than 65 living below the poverty level of $11,670 was 11 percent versus 6.6 percent for men, and 18.9 percent versus 11.9 percent for those living alone.  Women who turn on Social Security early for financial reasons permanently lock in a lower lifetime benefit in what may be their only pension.

Women also tend to work in industries that don’t offer retirement plans, so they miss the opportunity for wealth building through an employer match. With women’s average income hovering around $38,345, it is difficult to see how women would have any discretionary income left over for retirement saving.

Marital status is also a factor. Married women fare best, divorced and widowed women next best. Never-married single women incur the most cautious outlook for retirement.

The longevity gap between men and women is narrowing, but women still outlive men, and end up living out their later years alone.  Greater longevity is accompanied by larger risk of diminished purchasing power due to inflation.

The many socioeconomic issues facing women and retirement raise concern. What if the old method of trying to save enough for retirement doesn’t work for women?

New strategies are needed if women are going to thrive in retirement. Women should consider working longer in their careers, and part-time in retirement.  Women should also consider non-traditional residence sharing – renting out empty bedrooms, getting a roommate, and downsizing.  With the savings from reduced housing expenses, women could make financial investments in income-producing vehicles. Women could also turn their hobbies – for which they already have the skills, tools and materials – into profitable home-based businesses.

Women need to understand the role they play in their own retirement and take responsibility. They need to become financially literate and realize they will need income for life.  Women need to create stackable income streams to empower their retirement security and meet their monthly spending needs.

Women should also start talking to other women about retirement planning.  What are their friends doing to prepare for retirement? What if they got together once a month over coffee to start a conversation about women and retirement? They might discover that they have ideas, talents and resources to share with other women, which might enhance the retirement planning experience and success of a larger scope of women.

About the author

Donna M. Phelan spent more than 18 years at some of Wall Street’s largest and most prestigious investment firms. She holds an MBA in finance from the University of Connecticut, and provides personal financial advice to clients coast to coast. The author of Women, Money & Prosperity: A Sister’s Perspective On How To Retire Well, she has lectured at conferences nationwide on a broad range of financial topics and has published numerous articles on investments, retirement and financial planning. Phelan was formerly president of the American Association of Individual Investors (AAII) Connecticut state chapter and was active in the Financial Women’s Association (FWA) in New York.

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3 Financial planning tips for savvy women

Financial strategist Donna M. Phelan, author of “Women, Money and Prosperity: A Sister’s Perspective on How to Retire Well,” (www.donnamphelan.com) relates the story of Wanda Strong – one of four sisters – one married, one widowed, one divorced and one who never married.

Finding herself suddenly single with two kids to support and less than 15 years to retirement, Wanda had to make a choice:  she could either succumb to the numbing fear about her financial future, or she could embrace new strategies for prosperity.  She chose the latter.

“Many women feel an unspoken fear about money and retirement because they sense they are not prepared and don’t know what to do about it,” says Phelan.  “What’s worse – they don’t talk about it!”

Women may indeed be behind, due to a lifetime of lower earnings, leaving the workforce for childcare and eldercare, working in jobs that don’t offer retirement plans, and their own longevity, according to the US Census and Social Security Administration.

Phelan provides “ahs” – awareness, hope and strategies: awareness of women’s own financial situation, hope that it’s never too late (or too early) to start planning, and real life strategies that are easy and practical for women of any age or current financial situation.

1.  Create Stackable Income Streams to Empower Retirement Security (SISTERS).

Women need to stack several income streams to cover their retirement spending needs because one, such as Social Security, may not be enough.  And others, such as alimony, child support or a primary earner’s income, may disappear.

2.  Get as inspired to learn about money as you are about your new smartphone!

“Women often say that they can’t understand money concepts because they are too complex to learn,” Phelan says.  “But they want to learn about their smartphone  — by far, a much more complex, highly advanced piece of technology that is constantly changing –- because they want to stay in touch with their kids.”

“But think of the similarities between your smartphone and money:

•  Both have their own language.
•  Both give you tremendous options for freedom.
•  Both have a broad range of applications.
•  Both take time and willingness to learn.
•  Both can, at times, feel frustrating and overwhelming.
•  Both are within your intelligence and offer great potential rewards for mastering them.
•  Only one requires that you ask the advice of someone embarrassingly younger than you how to use it!”
3.  Join the conversation, start a SISTERS Club.

Wanda calls her three sisters and a few friends together to brainstorm new retirement strategies for stackable income streams.

They could:

•  Meet with a financial advisor and develop a written plan.
•  Learn how to create income from investments.
•  Embrace non-traditional living arrangements, such as renting out empty bedrooms, or getting a roommate.
•  Consider working a little longer, or part-time in retirement.
•  Start a business.
•  Pool their talents, ideas and resources.
A SISTERS Club, like a book club, is a safe environment where women can come together to share knowledge and experiences, generate ideas, and create investments and business ventures that will provide on-going retirement income.  It is a community of women helping women, and helping themselves to improve their retirement planning success. So join the conversation!

About Donna M. Phelan

Donna M. Phelan has spent more than 18 years at some of Wall Street’s largest and most prestigious investment firms. She holds an MBA in finance from the University of Connecticut, and provides personal financial advice to clients coast to coast. The author of “Women, Money and Prosperity: A Sister’s Perspective on How to Retire Well,” (www.donnamphelan.com), she has lectured at conferences nationwide on a broad range of financial topics and has published numerous articles on investments, retirement and financial planning. Phelan was formerly president of the American Association of Individual Investors (AAII) Connecticut state chapter and was active in the Financial Women’s Association (FWA) in New York.

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