While 98 percent of wealthy Chicago women say they are confident they will reach their financial goals, 67 percent of them lose sleep over money worries, according to a recent survey by Charles Schwab. Of those who say financial fears keep them up at night, the most common concern is outliving their money.
So, what’s the disconnect between all of that confidence and all of those sleepless nights? Brennan Miller, manager of Charles Schwab’s Michigan Avenue and Lincoln Park branches, says a key factor may be whether or not people have a written financial plan. The survey found that 94 percent of the affluent women say they have a financial plan, but only 54 percent have it in writing.
“In many cases, you have people doing well in life — making money and saving, but kind of doing it haphazardly, and then all of a sudden a rough patch hits, and you don’t know where you stand in relation to your goals,” Miller says. “If you haven’t addressed those goals with a financial plan, then you introduce that uncertainty, and that is why people have those toss-and-turn moments at night.”
To alleviate the fear of outliving your money (and join that well-rested and confident 33 percent), you need a comprehensive retirement savings plan. Not surprisingly, experts agree that the earlier you begin saving the better.
“A good rule to follow is to save about 15 percent of your income into a retirement plan,” Miller says. “The percentages go up if you are starting later. If you’re starting in forties, you may have to save 20 percent, in your fifties, you might need to save 25 to 30 percent, and all of a sudden that could be prohibitive.”
Kathy Roeser, a managing director with Morgan Stanley Wealth Management, says a trusted financial advisor can help you create a realistic plan for retirement. To take a quick assessment of where you stand, Roeser says to use the “funding ratio” to calculate the deficit or surplus between your savings and the money you’ll need for retirement.
“The ‘funding ratio’ is simply the present value of your current and planned future savings divided by the present value of your anticipated retirement needs,” Roeser says.
Determining the amount of money you’ll need each year to enjoy your retirement can be tricky. Miller says not to make the mistake of assuming your expenses will be significantly lower when you stop working. Sure, you may cut down on costs for professional clothing and commuting, but you’re likely to spend more in other areas, such as travel and healthcare.
“I’ve seen people spend more than expected in those first five to seven years of retirement because there is pent-up demand to do all these things you weren’t doing when you were working,” he says.
Another variable to consider is life expectancy. Barbara Provost, founder of Purse Strings, an organization dedicated to financial literacy and empowerment for women, says this is particularly important for women because they tend to live an average of five to seven years longer than men. What’s more, the last years of life, when many women are widows, are when the highest medical costs are typically incurred.
“A woman needs to really think about how she is going to care for herself when she is alone,” Provost says. “Along with retirement, women need to consider long-term care.”
Miller says it’s especially important for women to be diligent about saving because many women take time out of the workforce to care for children. He says you should begin by maxing out 401k contributions to take full advantage of any employer match. Next, build an emergency fund equal to three to six months of expenses. Once you accomplish those goals, funnel any extra money into a 401k or IRA.
“If you can hit all of that, there’s a good chance you will be on the path to a good retirement,” Miller says.
Don’t let your current lifestyle — a good job, a nice house, some disposable income — lull you into a false sense of preparedness for retirement.
“I have seen instances where a couple on the other end of the spectrum, with lower income and assets, was better prepared than an affluent couple who had never sat down to construct a financial plan,” says Erin Klein, supervisor of COUNTRY Capital Management Company Sales and Business Solutions. “It’s not what you have now, but how you’ve prepared.”
That’s why Klein says it’s important to develop a relationship with a financial advisor who can help keep you on the right track. If an analysis reveals your savings are lagging, she says to look at areas where you can cut expenses in order to funnel more money into your retirement accounts.
Despite the best intentions, people do sometimes find themselves approaching retirement without an ample nest egg. If that happens, Miller says you essentially have four options: delay retirement or at least work part-time to bring in supplemental income, live on less money during retirement, save a greater percentage of income while you’re still employed, or adjust your investment strategy to earn a higher return. Miller says people in their thirties and forties can safely exercise that last strategy by shifting more of their portfolio into stocks to get a better return on investment. However, by the time you’re in your fifties and sixties, you’ll probably want to pursue a slightly more conservative investment strategy.
“That doesn’t mean you completely avoid the stock market,” Miller says. “People are having retirements that last 25 to 30 years, so you need to make sure you have some exposure to stocks and make sure you keep pace with inflation.”
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