Financial planning for women is a subject that is very important to me, and it would be easy to get ‘bogged down’ with why we’re in the position we are rather than focus on the solution.
To progress as a society, we most certainly need to learn from the mistakes of the past. But, as a Financial Planner, I accept that I can achieve much more in a short space of time, talking about possible helpful considerations.
The fact of the matter is that, although the gender pay gap amongst all employees has declined by a quarter over the last decade, the gap increased to 15.4% from 14.9% in 2020 (ONS, 2021).
Centre for Economics and Business Research 2021, highlights that women have found that they are missing out on £183,936 compared to the amount that men receive from their pensions. Staggeringly, the average 20-year-old woman in the UK will have to work for nearly 40 years longer than her average male counterpart to build up the same pension (Hansard, 2021).
The Office for National Statistics concluded that a woman with dependant children is seven times more likely to work part-time than a man in the same situation.
So, what have we learnt so far? In general, women earn less, are more likely to take a career break, work reduced/part-time hours, and retire with smaller pensions.
Let’s take one further statistic into account; women tend to live longer than men.
Long lives are not a bad thing, I agree, but we now have to make less go further as far as financial planning is concerned.
Whether you are single, divorced, widowed or keep your finances separate, the six points below will hopefully be helpful:
1 – Identify your aims and objectives
What do you want out of life? What does the future or retirement look like to you?
Your aims and objectives are very personal, and it’s also likely to be changeable.
The further you are from retirement, the less likely you will have a nailed down idea of what you might fancy doing.
Also, our priorities change. I doubt I’m the only one who has re-evaluated what is important to me and what makes me happy due to the pandemic.
We don’t always like to think about the future. It can be pretty fun to enjoy the moment, but it’s a lot less fun to get too far down the line and find a severe lack of time to get yourself on track.
A starting point could be focusing on what you don’t want.
Maybe you don’t want to be working full time until you’re 70. Perhaps you don’t know where you want to go on holiday, but you know you do want to go somewhere lovely, and more than once a year.
Plan ‘A’ may not be the finished article, but it’s a start. After all, it is a woman’s (and not a storm called Eunice!) prerogative, or privilege to use the original saying, to change her mind.
2 – Create a financial plan
The next step is to create a financial plan to get you on track to achieve those goals. Getting on track means pricing up what the rest of your life might cost.
It’s sensible to start with the necessities, your basic living costs. Then add in the nice to have.
Then we need to make an allowance for the unexpected one-offs; you know, the boiler packing in or the car, or a hole appearing in the roof.
Single life can be pretty expensive. A house for one is not necessarily half the price of a home for two.
Lighting and heating bills aren’t halved either. Holidays might involve single supplement charges too.
Down the line, care fees might be more of a priority, as you may have to buy help at home.
Once the outgoings are established, you can determine whether your current and future assets and income are sufficient. If not, what can you do about it?
Basic planning is something that you could look to do yourself, but working with a Financial Planner has many benefits:
-We have the knowledge and expertise to allow us to include certain assumptions, around inflation, for example, making the results more realistic.
-We can model numerous ‘what if’ scenarios, so you are not limited to one version of your possible future.
-We can stress test these plans to see how robust they are. Would an additional unexpected expense be a non-event, or would it derail your plan?
3 – Build a cash reserve. Protect what you have.
It is vital for those living alone/responsible for their finances to have a sufficient cash reserve. There is no second income to make stretch if needs be. You cannot dip into someone else’s savings.
A common rule of thumb is to keep at least six months’ core expenditure as an immediate cash reserve. Depending on your other assets, it may be advisable to save more.
In this area, there is a need for balance, not to keep back too much and risk inflation eroding your capital’s value, whilst not finding yourself short of cash if things don’t go as planned.
Also, it makes good planning sense to protect what you have. Where your income is the only money coming in, how would you get by without it? Do you need to insure it?
If you were to become ill, do you have any liabilities that would benefit you by being paid off in full?
4 – Educate yourself
Maybe you are new to managing your finances. Perhaps you’ve never had an interest in the past. Perhaps you are currently part of a couple and don’t think money matters are your concern. Maybe right now they’re not, but they very much could be at some point.
You don’t need to know your finances’ technical ins and outs. That’s my job. It does help, though, to get a good grasp of what you currently have.
If you have a pension through your work, what are the options available to you at retirement? What is the pension invested in, and how has it performed?
What options are out there that might help you achieve your goals?
It might even come down to knowing how to complete your tax return.
5 – Consider investing, or at least appreciate the impact of not
Another ‘women/men’ statistic is that women are generally more risk-averse regarding investments.
I’m not arguing with the statistic, but I believe that a lot of the reasoning is often down to a lack of understanding of investment risk in the first place.
Opportunities arise from risks and controlling them. The key is balancing risks using a diverse range of investments across various asset types.
John’s article about investing vs speculating covered this well. I think many people are scared of the potential outcome of speculating, and rightly so.
Putting all your eggs in one basket, effectively gambling on one company’s success, is way beyond most people’s risk appetite – including men.
With education, professional support, advice and time, investing could be a helpful tool.
The alternative is to keep your cash in the bank. Even those with no interest in the financial world will know that interest rates are at record lows.
As the prices of goods and services go up over time, the buying power of your cash decreases. By not taking on investment risk, are you simply accepting long term inflation risk?
6 – Look at your state pension
Under the new calculation method, a full Manx State Pension is just under £10,000 per year. This income is inflation proofed and will be paid from the state pension age (soon to be 67) for the rest of your life.
Your State Pension is an excellent foundation from which to work.
Suppose you have worked part-time, taken a career break at any point, or maybe lived off-island. In that case, I strongly recommend that you obtain a state pension forecast and look at any opportunity to maximise your entitlement if you are not currently on track.
If you have worked in the UK, you may have even more opportunities to boost your state pension income.
It will take years, probably decades, or longer (if ever, in fact) to level things out. But there is a shift in attitude.
The gender pay gap is shrinking, albeit slowly. Last week we were told a government-backed review has found nearly 40% of the board positions at the UK’s biggest companies are now held by women. But there is certainly still room for many more rapid improvements in both how women are paid and in the structures of their pensions.
Education is changing to provide girls with more opportunities to move into IT and STEM subjects at younger levels: significant but slow progress.
Thankfully, the initial financial planning process is much quicker, and you can take charge of it!