Do Rich Women Fear Retirement?
July 24, 2008
According to a recent study by The Hartford Financial Services Group, women fear three things about retiring. They fear inflation, health and longevity. The study of 1,194 adult women between the ages of 45 and 74
“They have reason to be nervous. Women work 12 fewer years than men on average, have less put away for retirement and face high odds of a long life spent alone.” said Stephanie Chappell, The Hartford’s corporate gerontologist,
At the top of the list of fears was the fear if inflation. Of the women surveyed, 83% said that they feared that their purchasing power would dwindle due to inflation, compared with 69% of men. Smart women! Since the generally accepted rate of inflation runs between 3% and 4%, its realistic to see that your purchasing power will drop by over 60% in the next 20 years. Mind you that doesn’t factor in if we end up in a period of runaway inflation. Hmmm, could our current $4+ a gallon of gas and skyrocketing cost of food by a sign of high inflation. Well not if you listen to the government, but then the government is good at lying to us so don’t take them at face value.
If you read the news paper or watch the news you may hear some talk about the CPI (Consumer Price Index) The CPI is used by the government to assess where inflation.
The CPI was developed in the 1920s to monitor the cost of goods and services. During the Carter administration, the decision was made to remove high-cost items like food and fuel prices that would drive the CPI higher. Since the 70’s were a time of soaring inflation (stagflation actually) it’s not hard to figure out why the did this. I don’t know about you, but when food and fuel go up in prices, I feel it right away. So I’d say it’s a very relevant measure of TRUE inflation and to ignore it is an insult to our intelligence.
When the Federal Reserve sets interest rates, it bases interest rates on the core inflation rate; in other words, inflation without including the cost of food and fuel. Which is why they should have been raising rates recently as opposed to cutting them (but that’s a conversation for another time).
According to the Forbes “Investopedia,” core inflation excludes items such as food and energy because food and energy “face volatile price movements.” Sounds rather disingenuous doesn’t it?
In other words, since food and energy prices can spike upwards, as they have this year, the Bureau of Labor Statistics calculates “core inflation” without food and energy prices, under the rationale that food and energy price spikes are merely temporary price shocks that would distort the measurement of underlying long-term inflation. Unfortunately, in the real world the cost of food and fuel can’t merely be swept under the rug by those of us that actually by food and fuel!
If you’re a wealthy women that’s just started thinking about about your retirement, please keep inflation in mind through out the entire process of planning the retirement of your dreams.
75% of polled women saying that they were “very” or “somewhat” concerned with “declining health.” Over half of all bankruptcies occur as a result of someone that is blind sided with crushing medical bills that they were either not covered for or vastly under insured.
Add the rising cost of health care to fears of poor health, and 87% of the women expressed nervousness concerning retirement.
Sixty-four percent of the women said they were also worried about living too long, compared with 46% of men. Considering that the average women is widowed at a young 56 years of age, this is a very valid concern.
As I’ve mentioned before, women have a tendency to be too cautious when it comes to their investment choices and should be moved away from being “ultraconservative” investors to help build a realistic retirement that will stand the test of time.
Looking into Long Term Care (LTC) and disability insurance would be a very prudent thing to do.
Wealthy Women Still Need Long Term Health Care
July 14, 2008
As the baby boomers get older, the spector of failing health hovers over them like a vulture waiting. And like all things, the rising costs that accompany health care could add to the increasing complexity of retirement. How bad is the situation? Well according to a according to a study published by the journal of Health Affairs, illness and medical bills caused half of the 1,458,000 bankruptcies in 2001. Every 30 seconds in the United States someone files for bankruptcy in the aftermath of a serious health problem.
Surprisingly, most of those bankrupted by illness had health insurance. More than three-quarters were insured at the start of the bankrupting illness. However, 38 percent had lost coverage at least temporarily by the time they filed for bankruptcy.
Most of the medical bankruptcy filers were middle class; 56 percent owned a home and the same number had attended college. In many cases, illness forced breadwinners to take time off from work — losing income and job-based health insurance precisely when families needed it most.
The research, carried out jointly by researchers at Harvard Law School and Harvard Medical School, is the first in-depth study of medical causes of bankruptcy. With the cooperation of bankruptcy judges in five Federal districts (in California, Illinois, Pennsylvania, Tennessee and Texas) they administered questionnaires to bankruptcy filers and reviewed their court records.
Dr. David Himmelstein, the lead author of the study and an Associate Professor of Medicine at Harvard commented: “Unless you’re Bill Gates you’re just one serious illness away from bankruptcy. Most of the medically bankrupt were average Americans who happened to get sick.” Read that quote again…”Unless you’re Bill Gates you’re just one serious illness away from bankruptcy.” Hopefully you’re at full attention now.
According to the U.S. Health Care Administration costs are increasing at 5.8% per year and could triple in the next 20 years. At those rates, by the time you or your spouse need long term care, you may have to shell out between $500,000 and $1,000,000! As a women, imagine what that would do to your retirement if you spent a million dollars to take care of your ailing husband (remember, statistics show you’ll outlive him by at least 8 years) Now what happens if YOU end up needing some type of long term care? Will you have yet ANOTHER million dollars to spend on you needed medical treatments and proper care?
Now let’s add yet another layer to this. What happens if you are responsible for your parents? Can you afford to take care of their long term needs? What about your spouses parents. There currently are people who have been forced to take care of two sets of ailing parents and can’t even begin to think of their long term needs and retirement.
Don’t be fooled into thinking that your long term care needs are decades away. Working age Americans; those 18 through 64, account for a full 39% of those who need care. This means that one could need some long term care well before their investments have had time to mature and grow.
What ever you do, thinking about your health and long term care are an integral part of your long term financial future.
Why Wealthy Women Should Keep Assets in Their Name
July 9, 2008
Because the stakes are so high for rich women, they should keep as many assets as possible in their name.
Why should they do so? There are several reason:
1) If the loans and credit cards are in your spouse’s name, credit reporting companies may put your credit as inactive, meaning that your FICO score could plummet. This may not seem like a important now, but if you end up divorced or find youself suddently widowed, your problems are just beginning.
Let’s say that you and your husband lived in a $3 Million dollar home and the loan on it is for $2.4 Million. By not being on the loan, your husband’s credit will benefit immensely from paying the loan on time over a period of years. If he dies or you divorce, your credit will not show this high credit amount and you won’t be in a position to buy comparative real estate without putting a substantial amount down. In fact, your FICO score can drop drastically within 6 to 9 months if left dormant.
Since one of the main keys in maintaining and growing one’s wealth is through the power of leveraging your money, that will not be an option for you for a long, long time.
The flip side of this story is if your husband has some expensive habits that you’re not aware of he can drage down your credit. Think that your picture perfect husband is above that? You may be surprised. Bill Bennett former drug czar under George H.W. Bush and author of “The Book of Virtues,” was discovered to have a gambling addiction. How bad was his addiction? Documents show that in one two-month period, Bennett wired more than $1.4 million to cover losses. When all this became public in 2003, do you think his wife had a clue about his gambling addiction? Not a chance.
When pressed to comment on the reports of his gambling habits by Newsweek columnist and Washington Monthly contributing editor Jonathan Alter, Bennett like a good addict is prone to do, rationalized his addiction. He admitted that he gambles but not that he has ended up behind. “I play fairly high stakes. I adhere to the law. I don’t play the ‘milk money.’ I don’t put my family at risk, and I don’t owe anyone anything.”
2) If for some reason you need access to your cash for an emergency of some sort but your husband’s assets have been frozen or garnished due to an IRS tax lien, civil litigation. An old judgement that occured before you were married can come back and haunt you like a bad nightmare. Depending on the state, there can be a 20 year statute of limitations for enforcement of judgments. Like civil judgments, back child support can also come back and haunt you for up to 20 years.
With all the things that could come back and bite you on the ass, years after you’ve been married, do yourself a favor and make sure as many assets are held in your name as possible. Also make sure that when it comes to big ticket items like real estate loans, make sure your name is on it as well.
How Women Lose Thousands of Dollars Every Year.
July 2, 2008
For many years women have been dealt a harsh hand often called the “Glass Ceiling. Though it is a very real phenomena, unfortunately, many women contribute to this ceiling. How you might ask? Sadly several studies have shown that women don’t bother negotiating their salary and benefits package with the same aggressiveness that men do. An article titled How Salary Negotiation Contributes to the Wage Gap discusses how women often drop the ball and leave thousands of dollars laying on the table. They’re more often apt to accept the starting offer without negotiating for a higher salary, company car, stock options, or other similar perks that men will fight for.
In what could explain some of the chronic wage gap, men are more than four times as likely to negotiate a first salary, said Linda Babcock, co-author with Sara Laschever of the 2003 book “Women Don’t Ask: Negotiation and the Gender Divide.”
What’s left on the table over the long term can be staggering: The consequences of failing to negotiate a first salary can lead a person to lose more than $500,000 by age 60, Babcock said. Losses accumulate, she said, “because someone who comes in at higher salary, even if you’re getting the same rate increases, gets more every year.”
In a survey done last December by 24×7 Magazine, the wage gap had decreased to 9.4% in 2007, down from 11.5% the previous year. How much of that difference can be attributed to lack of more vigilant negotiation on the part of women we don’t know but it’s definitely something you’re going to want to keep in mind the next time you sit down for a job interview and discuss salary and compensation packages.
Why All Women’s Investment Decisions Must Consider Taxes
June 29, 2008
Common Mistake # 13 Failure To Make Every Financial Decision With Taxes In Mind
“Anyone may arrange his affairs so that his taxes shall be as low as
possible; he is not bound to choose that pattern which best pays the
treasury. There is not even a patriotic duty to increase one’s taxes.
Over and over again the Courts have said that there is nothing sinister
in so arranging affairs as to keep taxes as low as possible. Everyone
does it, rich and poor alike and all do right, for nobody owes any
public duty to pay more than the law demands.”
(1872-1961), Judge Learned Hand, U. S. Court of Appeals
“The hardest thing to understand is the income tax.” – Albert Einstein
As the old adage goes, “It’s not what you earn, but what you keep that matters.” The IRS has a job and that is to take as much money as it can from you. As a wealthy woman that wishes to remain wealthy, your job is to pay as little as legally allowed.
The government gets you coming and going. You pay, Income taxes on what you earn, capital gains taxes on your investments, estate taxes when you die and we won’t even get into sales tax, gas tax, luxury tax, excise tax, etc,.
If you want to hold on to your wealth, than you’re going to need to spend a fair amount of time thinking about how to pay as little in taxes as possible.
You’re going to have to utilize such tools as retirement plans, LLC’s, FLP’s, tax efficient investments, charitable remainder trusts, 529 plans, life insurance, living trusts and more. Obviously this means that you will have to speak with a tax professional on these matters and what tax minimizing strategies will work best for your situation.
How Taxes Kill Investment Returns
Deferred capital gains are lke interest free loans. And as long as you hold on to the investment, you never have to pay capital gains taxes.
If you lose money on an investment, they loses can offset the gains from another. So the government actually gives you some downside risk protection.
Rather than selling a stock and paying capital gains on it, you can donate it to a family foundation or a non-profit organization and take a tax deduction. It’s a win-win because you get a deduction on the amount that would have gone to the government in taxes and the non-profit can sell the stocks and help their efforts.
If you’re want to see some real numbers as to how taxes and inflation will impact your net returns, then click here to see How will Inflation and Taxes Affect Your Investments?
What Does Asset Protection Cover?
June 27, 2008
Asset Protection for women is a very important topic. If you’re like most of your wealthy female peers you have a lot to lose. In case you were curious about your rich female peers here how the stats stand:
According to a study done last year by Asset Management Advisors, 555 women were surveyed, most with net worths of $1 million or more. The survey found that 36% of the respondents inherited their wealth, while another 29% made money from their husband’s employment. Only 7% made their fortunes from their own businesses and less than half of the women surveyed were employed full-time.
With that kind of wealth, you can bet that many unscrupulous people out there would gladly try to separate you from your money. Just recently, I was at a charity fundraiser and met a newly divorced 40 something woman who told me the horror of having to write a check to her soon to be ex-husband for…..$2,500,000!!! According to her, he was a blue collar working man when they met that swooned her, wined and dined her and after a brief courtship they were married. No prenuptial was signed. Just a few short years later he wanted out and took half of her assets with him. Not too romantic is it?
The inner workings of asset protection are beyond the scope of this blog, however, finding a competent asset protection/trust attorney should be at the top of your list. You’ll need to sit down with one or more professionals who can make you as close to bullet proof as possible.
The range of tools for asset protection run from Federal and State exempt assets such as IRAs, 401(k) plans and pensions to LLC’s and FLP’s, to trusts and international offshore options.
Unfortunately, there are many shady characters in the asset protection world that run bogus seminars and such to sell you questionable asset protection programs. As with all things, please do your due diligence on any one you plan on working with.
The Quatloos web site is one of the best sites with regards to updated information on asset protection scams
Think You Don’t Need Asset Protection? Think Again
June 25, 2008
Common Mistake #12 Ignoring The Need For Asset Protection
Chances are, you’re very aware of how hard it is to amass any kind of wealth. How distraught would you be if, one day, a frivolous lawsuit cleaned you out? The goal of asset protection is to keep that hard earned wealth from being taken away. Essentially, the purpose of asset protection is to structure your assets in order to protect them from lawsuits, creditors and un ugly divorce.
Our increasingly litigious society has taught many unscrupulous people that the fastest way to attain wealth is through a lawsuit. All business owners that operate with out the shield of good asset protection run the risk of losing everything they spent a lifetime building. If you Google “Malpractice Attorneys,” you’ll get 1,140,000 hits!
Just recently, a New Jersey couple’s son was struck in the chest with a line drive during a little league game. The couple is planning to sue the maker of the baseball bat, the sporting goods chain that sold the bat and Little League Baseball Organization for the injuries that Stephen suffered. Whether or not this lawsuit is justified isn’t the point, the key is issue is that every one regardless of how incidental there involvement will be gravely impacted should this lawsuit go forward.
Next time we’ll dive deeper into the asset protection pool
Why You Must Have A Wealth Management Team
June 21, 2008
Common Mistake #11 Not Having A Wealth Management Team
“People who work together will win, whether it be against complex football defenses, or the problems of modern society.”
Vince Lombardi (1913-1970), football coach for the NFL
In this ever complex financial world, no one can go it alone. It would be fool hardy to think that one financial advisor could competently handle a wealthy woman’s financial needs. Would you let a gastroenterologist perform heart surgery on you? Probably not. Would you let a general practitioner perform brain surgery on you? Probably not. The complexity of these various procedures underscores the need for well trained and competent specialists.
The same applies to the financial arena. A solid financial game plan must incorporate
1) An Investment Advisor
2) A Tax attorney (usually specializing in a certain nuance)
3) A Finanical Planner
4) A Certified Public Accountant (CPA) or EA (Enrolled Agent)
4) An Estate Planning Attorney
5) An Insurance expert
6) An Asset Protection Attorney
7) A Trust Attorney
In some cases, a Private Banker and Personal Attorney may also be added to the team if the individual’s situation warrants it.
Why would an affluent woman need so many financial professional? Because the intricacies of each field are so detailed that in order to have a bullet proof financial game plan, a great team must have a quarterback, a running back, lineman, wide recievers, etc. Alone, despite and individual players greatness, few could score touch downs alone, but together working as a single unit playing from the same page of the playbook, an amazing transformation occurs and touchdowns are made and games won.
And just like each football team occasionally calls out a field goal kicker to work their magic, sometimes you may need to get real estate attorney, a corporate attorney or a charitable planning specialist.
Surround yourself with a team of top financial and legal professionals that will help you build, protect and grow your wealth.
Women’s Conservative Investing Style Costs Them Money
June 19, 2008
Common Mistake #10 Being Too Conservative With Your Investments
“Fortune favors the bold.”
Virgil
Roman epic poet (70 BC – 19 BC)
Historically speaking women have a track record of being conservative with their investments.
According to a survey by SmartMoney magazine., husbands are more willing to take financial risk when investing than their wives (62 percent for men versus 19 percent for women).This is bad for wealthy women for a number of reasons.
1) Women Outlive Men
Since women outlive men by 7-15 years depending on whose stats you use, women, more than men, must have an investing style that is more aggressive in order to insure that the growth of their portfolio will be sufficient for their retirement.
2) Women May Outlive Their Money
Women can expect to be single for the last two decades of their life, either due to being widowed or divorced. Not a pleasant thought, but then running out of money before you die is pretty damn terrifying as well.
3) Women Need To Learn About Investing Now!
In a recent study by Oppenheimer Funds, they found that with regards to investing, women:
76% wish they had learned more about investing growing up
62% do not understand how a mutual fund works
Only 35% say they’re more knowledgeable about investing than they were five years ago
4) Woman Shouldn’t Make Investing Decisions With Their Heart
Yet when it comes to the heart, women are more prone to being scammed by their “lover.”
Here are a few current stories on women being bilked out of hundreds of thousands of dollars by scum bags that lead them on:
Authorities: Homeless man scammed women on dating site
The Romance Scam
Looking for love? Keep an eye on your wallet
I encourage you to familiarize yourself with these types of romance scams by going to a great site called Romance Scams
The moral of this story is for all wealthy woman that want to remain wealthy and women that aspire to become wealthy, you MUST start taking an active interest in learning about investments and investing while staying away from romantic scammers and the low life “I’ll double your money in 90 days” con men.
“What about the risk?” you might protest. “I feel more secure putting my money in a CD or Money Market account.” You stand to lose much more by being conservative than if you have a well diversified portfolio. How can this be? It’s called purchasing power risk
The risk of loss in the value of cash due to inflation. Basically what this means is that while you’re money is sitting in a CD or other similar vehicle, the amount of things your money can buy slowly erodes day by day.As of May 12, 2008 a first class stamp will cost you 42¢. Twenty years ago, a first class stamp cost 25¢. In twenty years the cost of a first class stamp almost doubled in price! We could do the same with milk, eggs and other common items in daily living. I won’t even get into the absurd explosion in the price of a gallon of gas.
How Much Money Will I Need To Retire On?
With that price jump of a first class stamp still fresh in our memory, let’s talk about how much you want to retire on.
Let’s say hypothetically that you’re magic retirement number is $150,000 per year. Keep in mind that in twenty years assuming a standard rate of inflation of 3%-4% per year, your $150,000 in today’s dollars will only buy you about $75,000 worth of things in twenty years.
Think long and hard about how much you’re going to need in order to retain your desired lifestyle once you retire AND more importantly, how much purchasing power you may lose during your twenty plus years of retirement.
Now do you still think earning 3.8%* in a CD is still the way to go?
*Highest CD rate for one year listed on Bankoholic
Are You A Rich Woman Looking For A Rich Man?
June 18, 2008
I’m often asked by my wealthy women clients if I know any eligible rich bachelors. Since I’m not in the business of playing the part of matchmaker, I politely say no. However for those of you rich women that are determined to marry a wealthy bachelor, then you may want to use this information from the IRS as a guide to help you land that super rich single man! or you could just go to a web site that specializes in matching up rich men to rich women
The Affluent Woman Weblog 