When you’re ready to start planning for your financial future, a sit-down meeting with a financial advisor will make the process easier – and the outcome more successful.
While having a financial plan is important for everyone, it is especially so for women. Compared to men, women tend to live longer, earn less in their career, and experience longer absences in the workforce in order to care for children or aging loved ones. These factors, along with many others, can reduce a woman’s total earnings and, in turn, her retirement savings. In fact, a 2018 Prudential survey found that women save, on average, 43 percent less than men.
With women entering retirement at a gender disadvantage, it is essential that they develop a financial plan centered on long- and short-term goals in order to prepare for both the here-and-now, as well as the many unknowns that could lie ahead. For instance, how do you plan to fund professional care should a loved one need assistance down the road? Or for yourself, should it become necessary?
Underscoring the value of retirement financial planning, research consistently shows that people who have financial plans – developed in conjunction with financial advisors – save and invest more and are nearly twice as likely to feel on track in preparing for major financial goals, such as retirement.
3 steps to a financial plan that works for you
1. Define & prioritize your goals
The first step in the planning process is to define & then prioritize your personal & financial goals. This includes, but not limited to, your desired retirement age and lifestyle. With your goals clearly defined, you will need to then evaluate your current financial situation in terms of assets vs liabilities as well as income vs expenses in order to understand the resources available to fund these goals.
2. Determine your asset allocation
Your asset allocation – or in other words, the way you divide your investments among stocks, fixed-income and cash – determines how your assets will increase, or decrease, if exposed to unnecessary risk. Therefore, your asset allocation plays a pivotal role in your financial plan, because the investment decisions you make now and, in the future, will have a direct effect on your ability to meet your goals. Your asset allocation and overall investment strategy should be based on your personal circumstances, including your tolerance for risk and investment time horizon.
For instance, if your primary goal is supporting a long and active retirement, a significant portion of your portfolio should be allocated towards investments with the potential to grow over time. This includes, but not limited to, stocks or diversified stock mutual funds, ideally invested in a tax-sheltered retirement account. Or if buying a vacation home is one of your shorter-term goals, you might consider including taxable – but more liquid – growth-oriented investments in your overall mix.
Financial planning is an ongoing process. Changes on any number of fronts – from your goals to the economy and subsequent market performance – require that you regularly monitor your investments and make adjustments as needed to reflect your new situation.
3. Consider other types of protection
In addition to creating and executing an investment strategy, you should consider and plan for other potential financial risks and needs. Such as life insurance to provide greater security in the event of a spouse’s death, or long-term care insurance to help protect you from high medical costs should you or your spouse develop a disability or chronic health condition.
As a final consideration, no financial plan is complete without an estate plan. Estate planning can reduce your estate’s tax liability, as well as ensure your assets will be distributed according to your wishes.
Take one last step
When you’re ready to start planning for your financial future, a sit-down meeting with a financial advisor will make the process easier – and the outcome more successful. For starters, together you can talk over your situation and the kinds of investment vehicles that might best support your goals in the current market environment. Over time, your advisor can help you monitor your plan and make adjustments to keep it on track as circumstances change.