Knowing how to save and invest and plan for the future is hard at any age. If you’re not a financial planning expert, it can be downright overwhelming to determine what you should do and when. Women were gaining in employment before COVID-19 but have left the workforce in higher numbers during the pandemic with estimates of up to 3 million fewer women working in the US[i]. Regardless of your job situation (full-time, part-time, self-employed, contract employee, or SAHM), it is important to have an investing plan. Some research suggests even though women may be more reluctant than men to invest, they have better outcomes.[ii]
We’ve compiled some objective advice to give you a guide to financial planning decisions you should be making from your 20s through retirement:
20s - Working Hard
#1 Invest in your Career. In many ways it’s all about you and doing your thing: learning, connecting with people, and moving up. You realize the years start to go by fast so make sure you are taking the little steps now so that you can be ready to retire in the future.[iii]
#2 – Set a budget with the 50/20/30 rule. 50% of take-home pay towards NEEDS (bills, food, etc.) 20% take-home pay toward WANTS (travel, restaurants), and 30% of take-home pay to FUTURE YOU (debt payments, saving, investing). This is an example but make sure you are reviewing this every year to keep you on track.[iv]
#2 Start Saving for retirement ASAP. Try to take full advantage of any 401k company match. It is free money!
#3 Build Your Credit History/Pay off Debt – it’s a chicken and an egg scenario – you need a credit card to build a credit history so you can apply for credit cards and other larger purchases. But you need to build a GOOD credit history by paying off your bills each month in full. According to CNBC, having good credit will open many doors for you down the road, such as qualifying for the lowest interest rates on a new car loan or a future mortgage on your first home.[v]
#4 Set Realistic Financial Goals:
- Short term – start an emergency fund. We recommend saving 3 to 6 months’ worth of take-home pay, depending on how stable your income is.
- Long term – set your goals such as saving a certain amount for your wedding in two years, and then look at your discretionary income to decide what can stay/what needs to go.
30s - Beginning to Build Wealth
#1 Pay down DEBT. Whether it is a credit card or student loan, we recommend reviewing the interest rates and paying the minimums across your accounts BUT then putting any extra cash you can find in your budget toward the balance with the highest interest rate. According to Clevergirl Finance, the average student loan debt in America is $32,731. Focusing on reducing the cost of the debt by refinancing a student or vehicle loan might be an option for you.[vi]
#2 Contribute to retirement savings now - once you have your debt paid off or are on a solid plan, and have a solid emergency fund in place, you can turn your attention more fully to your retirement. Check to see if you can bump up the contributions to more than the company match, with the goal of eventually being able to do the maximum each year.
#3 Homeownership – whether this is on the horizon for you or not, owning a home is a great way to build wealth. The goal should be to save enough for a 20% down payment. Work toward this.
#4 Planning for the cost of a family - if you are thinking of having kids, now is the time to prepare for the future costs. This is especially true if your plan includes having one parent stop working for a few years, and/or if you want to help pay for college. Bankrate.com estimates in the US, the average cost of raising a child through the age of 17 is $233,610. This figure is based on data compiled in the most recent Expenditures on Children by Families report completed by the United States Department of Agriculture (USDA). Average college costs for full-time undergraduate tuition range from $18,550 to $54,880 per year for four years. [vii] Take advantage of 529 plans to start saving now and you will thank yourself later!
40s – Taking Calculated Risks
#1 Maybe you are thinking of changing careers? For many people these years are the prime earning years. You really have to think about the risks of staying at a job just because you feel secure vs. the risks of trying something new. Find a balance between the things you love to do and the things you find satisfying, with the things that are not so fun. Managing the risk in your personal earnings and savings is much like managing the decisions with your portfolio. We believe that a portfolio is not just about return BUT managing the risk in that portfolio while generating returns.
#2 Grow your net worth – according to an Ellevest survey, women in their 40s were most likely to prioritize investing to grow their net worth during this decade.[viii] Do this through a combination of mindful spending, thoughtful planning, saving, and investing.
#3 Maximize your retirement contributions. As your income goes up, make sure to adjust your contributions up too. Women live on average six to eight years longer than men, yet retire with less money (around $70,000 less) according to a Bank of America 2020 Workplace Benefits Report.[ix] Plan now so you can have the lifestyle you envision when you are ready to stop working.
#4 This is a fun one to think about if you haven’t already - now’s a good time to look into life and long-term disability insurance (outside of what is offered through your employer). Long-term disability covers part of your income if you are unable to work due to injury or illness. Supplemental life insurance can cover costs such as burial, accidental death, or dismemberment. This is very important if you have people depending on your income.
#5 Talk money with your parents. Discuss what their plans are once they retire. Ellevest estimates nearly a third of adults end up providing financial support for their parents so their plans may affect your lifestyle and financial planning.
50s Getting serious - hiring a financial advisor
#1 Ask the experts - you are at a point in your life that retirement is probably on the horizon so having someone that you feel comfortable with, asking questions, and checking to see if you are on track, is extremely important. Most people know to accumulate as much as they can before they retire - but once retirement comes, they don’t know what to do next. This is where a professional can help the most!
#2 Cut costs - where it makes sense. Whether you are ready to downsize and will have some extra money to save each month or if you are looking five years down the road, take a good look at your extra dollars each month and use them wisely to invest towards retirement.
#3 Get more specific about retirement – Now it’s time to get real on what you want yours to look like. Think about the location, housing, and other needs you’ll have, as well as activities, travel, and family support you may want to provide.
60s – Here you are! The decade when most people retire
#1 Start to consolidate your accounts - make sure you know where everything is, keep track of your passwords and online log-ins and share with those closest to you. The New York Times recommends seniors use a password manager software program to help them organize this critical information. It’s also helpful to create an “important documents” file for loved ones.[x]
#2 Asset Allocation – we recommend revisiting your investment allocations annually. At this point, you may want to be more conservative with your investments as you limit risk.
#3 Invest for what is next – just because you're retired now doesn’t mean you have to stop investing for future growth. More and more retirees are working to supplement their income – estimates are of workers age 65 or older, 40% had previously retired at some point, according to a report from Rand Corporation[xi]. CNBC notes it’s worth checking how extra income from a job could impact other financial areas of your life, including Medicare costs and Social Security benefits[xii]. Ideally, during retirement, a portion of your portfolio is generating income for you.
#4 Long Term Care insurance – not fun to think about but very important. It’s expensive, so make sure you plan for this is a must. MarketWatch estimates 7 out of every 10 seniors will need long-term care at some point during their lifetime. Like other insurance premiums, long-term care costs vary by age, gender, and the type of plan and carrier you choose. Average costs in 2021 for a single 55-year-old woman were $1,500 annually. Putting off buying the insurance adds to the annual fee, with a 65-year-old single female paying $2,700.[xiii]
#5 Legacy – now is the time to confirm all of your estate documents like wills, healthcare directives, and beneficiaries are up to date. Look into setting up a Transfer on Death (TOD) designation for individual accounts, which helps you decide how you want to pass on your money – whether it is to a family member or charity. As part of your estate planning, talk with a financial advisor to determine if you should set up a trust (often recommended if you have substantial assets and are interested in minimizing gift and estate taxes).
#6 Enjoy your retirement! You’ve worked hard and if you’ve followed the tips above, have decades of planning to prepare you for this transition in your life.
The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual. Asset allocation does not ensure a profit or protect against a loss.
Katy Ufferman (ChFC) is a chartered financial consultant with Maxwell Financial Management and leads the firm’s practice dedicated to helping women with their investments and retirement planning.