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.
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
NEVER Loan Money to Friends or Family
June 10, 2008
“Half of our mistakes in life arise from feeling where we ought to think, and thinking where we ought to feel.”
-John Churton Collins
These next common mistakes get pretty lengthy so I’m going to tackle them one at a time each day this week.
Common Mistake #7 Being An ATM Machine For Your Friends and Family
When you’re affluent, you’re going to become a magnet for your family to come to you hat in hand asking for a “loan.” That “loan” will almost always turn into a gift. When (and if) you ever ask for pay back, you may be surprised at the creative responses you’re going to get in response. To some extent, at the core root will be resentment. Yes resentment that they had to come to you for money and that you had it to give to them. Many will feel that since you’re rich, regardless of how you attained your money, that you owe them part of it. Friends and Family will bleed you dry if you let them. You may worry about losing a relationship over your not giving them a “loan,” however, chances are that you will lose it even if you do.
Every dollar that you give to someone else is a dollar that you can’t save or invest for your own future. This is called opportunity cost. The power of compound interest should immediately come to mind whenever someone approaches you for a handout.
If hypothetically you’re 30 years old now and you were to invest $1,000 a month every month for 35 years earning a standard rate of return, how much would your nest egg be worth at 65? Well, through the power of compound interest you’d have over $2,300,000! Guess what happens when you keep siphoning off money from your nest egg? Yep, your nest egg’s growth gets stunted. Don’t believe me? See for yourself. Check out this compound interest calculator and play around with some numbers
The rest of the mistakes will be discussed in depth through out this week. See below for a sneak preview.
Common Mistake #8 Investing In Your Family, Friends, or Fellow Church Members
Common Mistake #9 Repeating Your Families Bad Money Habits
Common Mistake #10 Being Too Convervative With Your Investments
Common Mistake #11 Not Having A Wealth Management Team
Common Mistake #12 Ignoring The Need For Asset Protection
Common Mistake # 13 Failure To Make Every Financial Decision With Taxes In Mind
Common Mistake #14 Not Negotiating Harder For More Money On A Job Interview
It’s Time To Have "The TALK" With Your Husband!
June 7, 2008
The problem with communication is the illusion that is has occurred.
George Bernard Shaw
In an earlier blog, we talked about how legendary film star Doris Day had blindly trusted her husband to invest the $20 Million+ fortune she’d amassed during her career. When her husband died, not only was she broke, but she was in debt to the tune of almost $500,000!!! Hopefully, you will never find yourself in this mess. One of the first things you must do to prevent this from happening.
You need to sit down with your husband and have a talk about your complete financial situation. Sadly most couples never have THE Talk and the woman finds out the hard way whether it is when she’s widowed or getting a divorced that she’s in a very bad financial situation.
People often live like Ostriches with their head in the sand but the numbers and facts we’ve discussed in an earlier blog underscore that if you don’t get the details out in the open NOW you will most assuredly suffer later.
When you sit down with your partner, you may be in for a rude awakening. One of two things are going to happen; they will be happy that you took the initiative to learn about your finances and as a sign of love and caring for you, they will gladly go over every item with you thoroughly and lovingly. The other possibility is that for reasons such as control, and jealousy they will ignore your concerns. You may be surprised to hear such emotional things as control and jealousy be brought up. To ignore the emotional components as they affect financial outcomes is to risk putting yourself in a hellish situation.
Don’t assume that your husband or partner is smarter about money than you are. Don’t let your husband patronize you with a dismissive, “Don’t worry babe, I got it covered.” We’re not saying that all husbands have evil intent, but a decision made in ignorance will hurt you ever bit as much as a decision made with malice aforethought.
If your partner truly loves you, then they will want your finances to be completely transparent. They will want you to be a part of the decision making process, or at least respect you enough to keep you in the loop. Remember, that once you say “I do,” you have entered into a legal contractual relationship that is not unlike a business partnership. Doesn’t sound romantic does it? Sad but true, nonetheless, if you should find yourself in divorce court one day, or your partner dies suddenly, the court will treat your marriage (regardless of how you viewed it) as a simple legal partnership, period!
So how do you start “The Talk?” Pick a quiet time during the day or evening when you will not be disturbed. Ask him, what would happen to you if something were to happen to him. As you prepare to have this discussion consider these facts from a report done by WISER
“A woman’s marital status is a significant factor in determining what her income will be when she retires. Women with the most comfortable retirement incomes are those who are married and living with their husbands. By contrast, women with the lowest incomes are those who are the head of households and live alone. In 2002, just over 50 percent of married couples ages 65 and over had incomes of $35,000 or more. Fewer than one in fifteen women aged 65 and living alone had incomes of $35,000 or more. In fact, over 61 percent of women living alone after age 65 had income under $15,000.*[1]
In 2004, 57 percent of women aged 65 an older were single. They were either widowed (43.5 percent), divorced (8.9 percent), separated (0.9 percent), or never married (3.7 percent). In contrast, only 26 percent of elderly men are single.” *[2]
With the average woman being widowed at 56 and longevity reaching 85, you’re likely to be single for the last 29 years of your life. Can you afford not to be proactive regarding your finances and long term security?
Your partner might try to dismiss you with “Don’t you trust me?” or “Don’t worry baby you’re going to be well taken care of.” Fine then ask him to walk you through it. He may have a superstitious fear of speaking about these things for fear of “jinxing” himself.
How can a couple claim to truly love each other, claim great intimacy and yet, not be willing to openly discuss death and dying? We won’t even get into divorce which is of equal concern.
Ask to see all the investment papers, wills, trusts, deeds, LLC’s (Limited Liability Corporation), insurance documents, etc. He’ll inevitably ask you what the hell is going on. Allay his concerns by saying something like, “My friend Beth’s sister’s husband died suddenly and she found out the hard way that he had no life insurance, he was deep in debt, and his investments were all not performing. Hearing this really shook me up, so it would really make me feel better if I knew where we stood as a family financially.” Hopefully this will help to reassure him. If he rebukes you, then you’ve got some problems and will have to make some other arrangements. We’ll get into that emergency scenario in a later blog.
Once you’ve had The Talk, ascertain if you feel comfortable with the situation. Are you covered financially if your husband dies suddenly? Does he have sufficient life insurance to keep you living in the same lifestyle you live now and enough to meet all your financial obligations. Are you shielded from his business’s debts or can creditors come after you and all your assets? Are you protected from any potential litigation? For example, if you have a rental and for whatever reason the tenant sues you, are you protected or can they take you for everything you own?
This first assessment is the most important one you can make.
[1] Social Security Administration: Income of the Population 55 or Older, 2002. March 2005.
[2] U.S. Census Bureau. America’s Families and Living Arrangements: 2004. Current Population Reports. June 2005.
Will You Outlive Your Money?
June 4, 2008
“I have now the gloomy prospect of retiring from office loaded with serious debts, which will materially affect the tranquility of my
retirement.”
— Thomas Jefferson
I’m not in the habit of writing two posts a day but this sad news item caught my eye. Ed McMahon, legendary side kick to Johnny Carson, host of Star Search, and pitch man for many products and companies is about to lose his home. According to the LA times
Mr. McMahon, 85 years old, was about $644,000 in arrears on the loan when the notice of default was filed. We used to think that the main challenge with retiring was whether we’d have enough money to retire in the style we choose. The other important yet oft ignored question is will you outlive your money?
The average woman is widowed at the age of 56. That’s quite young by today’s longevity standards. According to the CDC, the average life expectancy for a woman has now reached an all time high of 80.1 years. Potentially that means that a woman could be expected to be on her own financially for up to 24 years!
The question is….what are you doing today to prepare for this possibility?
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