0 comments on “Financial Security Harder to Find for Women than Men”

Financial Security Harder to Find for Women than Men

The other day, my husband was watching an old episode of The Golden Girls while eating breakfast, and I caught a bit of it. I was shocked to learn that the characters were in their early 50’s, making me a golden girl – ugh! In this particular episode, Rose, played by Betty White, had been laid off from her job, and Dorothy (Bea Arthur) and Blanche (Rue McClanahan) were commiserating. None of them could go more than one or two missed paychecks without facing a crisis. A number of Golden Girls episodes deal with the characters’ precarious financial situations, which unfortunately, is a common story in America.

Women face particular challenges when preparing for retirement. They are more likely to have taken time off work to be a caregiver to children or older parents than men, which reduces both current income for saving and future social security benefits. The TransAmerica Retirement Survey of Workers reported that 45% of working women are working part-time vs 24% of men.  Part time positions often don’t have access to company retirement plans, and even full time working women still make about 18% less than men, making it harder to save.

Women on average, will live five years longer than men, so their need to save for a secure retirement is even more acute than it is for men. Yet across the board women are saving less. In its Global Investor Pulse Survey, BlackRock found that of those who had begun to save for retirement, women had accumulated $41,900 less than men. The EBRI Retirement Confidence Survey, found that 44% of unmarried women had savings of less than $1,000. Single women on the verge of retirement have a savings shortfall amounting to $5,250 of income per month, vs Men whose average shortfall is $2,833. Not surprisingly, women are less likely to feel confident about their financial security in retirement than men. While women are saving less, they’re investing their savings more conservatively, with about 63% of their holdings in cash or similar investments according to the BlackRock survey. More conservative investments means lower returns, and a further shortfall in savings.

What can women do? Here are five important things women can do to improve their chances for financial security.

1) Take charge of your own financial future. Surveys indicate that less than half of couples create a plan for their financial security together. Be an active part of planning for your future.

2) Have a budget. If you are spending all that you take home, you are failing to pay one very important bill – the bill for your future financial security. Consider your savings target as one more bill that you need to pay, and include it in your family budget.

3) Understand what you have. Make sure that both you and your spouse are aware of all of the accounts you have, their balances and how they are invested. Review your estimated Social Security benefits to understand how gaps in employment will impact your benefit.

4) Don’t be afraid of the stock market. To maximize your savings, you are going to have to invest in the stock market. Yes, it does go down sometimes – about one in every four 12 month periods, in fact. But it has never failed to recover. Stocks are perfectly appropriate for long term investments, such as retirement savings.

5) Seek help. There is no reason you have to plan for your retirement on your own. You wouldn’t rewire your house by yourself. You would hire an electrician. There is no shame in hiring a professional to help where you don’t feel comfortable. Many financial planners work on an hourly or project fee basis. There are also many great free resources on-line.

The things women need to do to become financially independent are really not different from what men have to do, but women face special challenges due to lower lifetime earnings and longer expected lives. That means women must get educated about what it takes to be financially secure, and they must take an active part in planning and saving for their future.

0 comments on “Is the Stock Market Set for a Tumble?”

Is the Stock Market Set for a Tumble?

There is a lot of angst in the financial news about an impending stock market decline. These range from concern about a “correction” to an out right crash, a la 2008. The general concern is the stock market is over priced relative to the earnings the underlying companies are generating.  Annual growth in corporate earnings for the companies in the S&P 500 has slowed in the last couple of years, and with the Federal Reserve on the verge of raising interest rates for the first time in nine years, analysts suspect the stock market is vulnerable. Higher interest rates could put pressure on corporate earnings, potentially slow economic growth and would present a more attractive alternative to the stock market than is currently the case.

First, is the stock market over priced? The current price to earnings ratio (P/E) on the S&P 500, a common measurement of market valuation, is a little over 20 based on first quarter earnings annualized.  Using analysts projections of 2015 earnings, the ratio is a little over 18. The ten year average P/E ratio for the S&P 500 using actual 12 month earnings (vs analyst projections) is a little over 17, and the twenty year average P/E ratio is about 20.5. So at between 18 and 20, depending on assumptions, the market P/E is on the high side of average, though I would not say the market (as represented by the S&P 500) is very over priced.

Second, is the stock market vulnerable? Sure. The market is sensitive to all sorts of things and fluctuates widely based on global news. I would say the stock market is always vulnerable. The Federal Reserve is expected to raise interest rates in the near future, but the economy is growing only slightly faster than anemically and inflation is below where the Federal Reserve would become concerned. So a rapid rise in interest rates that would damage corporate earnings or economic growth is not likely.

Third, who cares? The stock market on average has a down year one in every four 12 month periods.  It has never not recovered. In 2000 to 2008, we had more than our share with three big calendar year losses, two of which were back to back (following the tech bubble). But even with these, the stock market regained it’s footing. In some cases it takes longer to recover than others, and if your planned cash flow is tied up in the stock market during a down year, that is a problem and a loss that can’t be recovered. However, if you treat the stock market as a long term investment, there is no reason you cannot ride out the downs as well as the ups.

A good rule of thumb is to invest only money that you won’t need for at least ten years in the stock market. Historically speaking, the stock market has a low likelihood of being down over a ten year period. Money that you may need sooner should be invested in less risky investments like bonds, which have a low likelihood of being down over three year periods or money market funds which present a very low likelihood of loss ever. That makes stocks a great investment for retirement savings, regardless of today’s valuation, if you have more than ten years before you start drawing down your account. It makes stocks a lousy investment for your emergency fund, the money you’re saving for the down payment on your house, or the money you will draw down from your retirement account over the next ten years.

I’m convinced timing the market is impossible. Those who have been successful have been lucky, and there is no evidence that anyone can consistently do it. So why worry about whether the market is over valued? Over the long term stocks are a good bet and an important investment if you are going to be financially secure and independent.

0 comments on “We Have a Lot in Common with Our Canadian Neighbors”

We Have a Lot in Common with Our Canadian Neighbors

Last week, my husband, Jeff, and I visited Toronto, Ontario Canada for a wedding. We were treated to beautiful weather, visited Niagra falls, enjoyed seeing friends and meeting new people at the wedding and had a great afternoon in Kensington Market in downtown Toronto. I was struck by how similar things were in Canada. Our hotel was across the street from a Walmart (the hotel was chosen for its convenience to the wedding site), and indeed there were strip malls and Walmarts seemingly everywhere. Some of the chain names were different, but many were the same.

One other thing that Canada has in common with us is their paltry personal savings rate. The morning after our arrival, the headline story in the local newspaper was about the Canadian Parliament deliberations regarding increasing contributions to the Canadian Pension Plan, because Canadians aren’t saving enough for retirement. The Canadian Pension Plan is similar to US Social Security. Canadians, like us, must also save to insure a financially secure retirement. The Canadian three year average household savings rate has been 4.82%.  The US three year average household savings rate has been 5.5%.

Our three year average household savings rate bottomed out at 2.9% at the end of 2007, and recovered following the financial crisis to the current level.  Longer term it was much higher. The norm through 1985 was above 10%. The dramatic decline since is surprising given that the changes we have experienced would indicate a higher, not lower, savings rate. Most of us don’t have access to a traditional pension plan through work any longer. Pensions were far more common prior to 1985. That benefit was replaced by the defined contribution plan which offers no guaranteed income level and requires us all to contribute and manage our savings on our own. We’re generally living longer. On average we were expected to live to 75 in 1985, and by 2010, we were expected to live to 79. And living longer is more expensive, due to the rising cost of health care. All in all, we should be saving more not less, and the same goes for Canadians.

So what gives? Those in the know site stagnant wage growth, but the savings rate was in a nose dive even prior to the post financial crisis flat-line for American average hourly wages. Americans, and Canadians, have had to take more responsibility for determining what to save and how to invest since 1985 when 401(k) plans and other similar savings vehicles became popular, and traditional pension plans began to disappear. Unfortunately, by and large, we are ill equipped to manage the responsibility. Whereas corporate pension plans had the benefit of teams of actuaries and investment professionals, the average American doesn’t even get any education in creating a budget, let alone long term saving plans or the fundamentals of the investment markets.

In order to avoid a serious financial set-back at the end of our working careers, not to mention lasting stagnation in our nation’s economic growth, we are going to have to become more financially savvy. We’re not going to become actuaries or investment gurus, but we can learn some basic skills that will significantly improve our prospects. I’m dedicated to helping develop those skills here, so please stay tuned for ongoing tips and information on how you can become financially secure in retirement or sooner.

0 comments on “Who Says Home Cooking is Boring?”

Who Says Home Cooking is Boring?

The thought of eating out is enticing for so many reasons. It’s fun to get out of the house and into a new environment. It’s great to get out of cooking and cleaning. But really, it’s about the food! We long for something special, for something different, attractive and delicious. We want something wonderful, like what you see in the photo.

The dish in the photo is beautiful.  It’s well composed. There are lots of colors. The ingredients look fresh. I personally would be thrilled to have a server place this in front of me at a posh restaurant.

Well a server did place it in front of me, but I wasn’t at a posh restaurant. The server was my daughter, Kaye, who is seventeen and also the chef. One of Kaye’s chores is to make dinner for Jeff and me on Sunday evenings. It seems only fair, since we make dinner for her the other six days of the week. Kaye has been cooking, mostly with Dad, for years and has become quite accomplished. Since Kaye, like most seventeen year-olds, isn’t much of a planner, everything in the meal was something that we happened to have on hand when she started thinking about dinner at 4:00 pm.

This dinner includes shrimp, which you see on top, bell peppers, onions, mushrooms and spinach over quinoa and topped with pine nuts. The shrimp was tossed in Jeff’s pesto, which was left over from a dinner earlier in the week, and is made out of cilantro, olive oil, garlic, and lime juice. The most expensive part of the meal was the shrimp, followed by the mushrooms. Overall, to feed all three of us, it cost about $23, or $7.69 each.  It would cost nearly that much just to add shrimp to a dish at a typical restaurant.  For example, at Red Lobster, to add a skewer of garlic shrimp to your meal, it costs $5.49 extra.

Now, I did have to clean up, and the room was just our dining room. But the company was great, and I didn’t have to fight traffic, look for parking or wait for a table. Home cooking doesn’t have to be boring or difficult (especially if you have your kids do it). You can have a fabulous meal for a fraction of the cost of eating out.

0 comments on “Roommate or Razor’s Edge”

Roommate or Razor’s Edge

A while back a colleague of mine, Ted (name changed to protect the innocent), came into my office. He asked me how I invested my money, because his investments didn’t seem to be growing enough to provide him any hope of retiring with a comfortable lifestyle. I asked him the same question that I ask everyone who asks the “what do I invest in” question. “How much are you saving?”

Ted answered “I’m saving enough in my 401k to get the company match”. At our company that meant that Ted was saving about 6.0% of his income, and the company was matching 4.5% of his income. He was right.  At the pace he was saving he’d wind up with about half of what he was taking home today in monthly income in retirement. I asked did he have any savings outside the plan. No. Did he have an emergency fund? No.

I told him his retirement plan savings were certainly a good start, but if he wanted his retirement savings to grow, not to mention be a bit more financially secure today, he needed to save more. Ted is a divorced dad helping to pay for his step daughter’s college education and support his elementary school age son. Ted’s response was that he just didn’t see how he could save any more than he already was, given his house and tuition payments.

Yes, your choice of investments will have an impact on how quickly your savings will grow, but if you have an investment strategy that is right for your age (or, in investment speak, time horizon), the only way to get your savings to grow faster is to save more.  Ted was using a recommended investment mix, provided by the company plan, that was designed for people in Ted’s age range. Since I was responsible for developing the recommended mixes, I was in full support of his investment choices.

So what is a guy like Ted to do? There are two ways to improve your ability to save; earn more or spend less. It turns out that Ted owned a three bedroom house in a Portland suburb.  With his step daughter away at college, it appeared that the house was bigger than he needed. One way for Ted to earn more would be to rent out a room in his house, either to a well screened roommate or intermittently through a service such as Airbnb. The current rental market would allow Ted to make enough to pay most of his share of his daughter’s tuition payment.

Most people don’t want to take on a roommate.  If they are not falling behind on bill payments, they believe they are living within their means.  However, people like Ted are living on a razor’s edge with no emergency fund, and little in retirement savings. What if Ted were to lose his job or become disabled? His situation would very quickly become dire. Therefore, Ted was living beyond his means, and to be financially viable, he needed to compromise. Taking on a roommate was one possible compromise.

What ideas do you have that will allow you to increase your savings rate? Share them here.

0 comments on “A $10 Salad?”

A $10 Salad?

This weekend, my husband, Jeff, and I went on a kayaking/bird watching tour with some friends. On the way home we stopped at a restaurant on the river for some lunch. I’m not much of a burger or fried fish eater, so I ordered a salad. Jeff warned me against it, since I have a salad at home almost every day. But the description looked delicious.  It was something like this:

Fresh mixed greens with strawberries and carmelized onions, dressed with a strawberry and yogurt vinaigrette, topped with Chevre – $9.95.

This was a late lunch, and I’d had an early breakfast before the trip. I was on the hungry side. In fact Jeff’s arm was starting to look tasty. So when the salad arrived, I was disappointed. It was a very small portion, there was one strawberry and a sliver of carmelized onion. The ingredients were fresh and of high quality. It just wasn’t $10 worth of salad.

The USDA Economic Research Service reported that in 2012, food prepared away from home, i.e., restaurant food, whether take out or sit-down, represented 43.1% of average household spending on food. That is up from 25.9% in 1970. In 2014, the NPD Group, a market research firm, reported that the average american ate food from a restaurant 191 times per year.That’s more than three and half times per week.

Eating out is expensive. One of the easiest ways to save money is to eat out less often. Let’s compare salads. The salad in the photo is the salad Jeff made for me the day after our kayaking trip (I told you I eat a lot of salads). It had spinach, cabbage, celery, bell peppers, cherry tomatoes, cucumbers, carrots, Kalamata olives and Feta cheese. The cost to make this salad at home was about $4.00. We saved more than half over the $10 restaurant salad, and we got about two and a half times the food. Plus it was every bit as lovely as a restaurant salad.

Most people eat out for social or convenience reasons.  Dining out socially is great, provided you have the budget for it, but dining out for convenience is a waste of time and money. Even social gatherings can be less costly and just as fun if you gather together in your or a friend’s home with everyone bringing a dish or drinks. With a little planning you can have great food for less money and no more time.  From time to time, I’ll share a dish that we’ve made at home and compare the value of make at home versus buying already prepared.  If you have a dish or recipe you’d like to share send it along.

0 comments on “What is SeSo?”

What is SeSo?

SeSo stands for Save Early, Save Often. Here, I will be providing tips on saving and investing for financial independence and the occasional rant on things that get in the way of becoming financially independent.  Financial independence means you get to decide how to spend your days, and not have it decided by your mortgage and credit card payments. You do not need to make a lot of money to become financially independent, but you do have to be willing to save a good chunk of what you do make.

In its 2013 survey of American Households, the Federal Reserve found that the median total savings in retirement accounts of people aged 55 to 64 was $111,100 and for those aged 45 to 54, $100,000.  If you were to retire on $111,100 this would give you a monthly income of about $550 per month if you invested in an income annuity at today’s rates.  Even with Social Security, that doesn’t go very far.  The Motley Fool calculated that the average mortgage payment for these same age groups was $766 and $891 respectively. If all you have in retirement savings is $111,100, Average Americans, you cannot even make your mortgage payment with your retirement savings.

The lack of retirement savings will be a big issue not only for the individuals who will see their lifestyles seriously scaled down, but also for our nation’s economy.  Our economy is driven by consumers, and if a large portion of our consumers can barely make ends meet, we can only expect slower economic growth and fewer opportunities for the younger generations.

I recently retired from my corporate career in the investment and financial services industry. I’m 51 and I’m financially independent. How could this be?  No, I did not inherit a pot of money from a distant (or close) relative.  No, I didn’t sell my start-up to Google.  I never had a start-up.  I have been well paid in my career, and cashing in some stock options provided by my company did shortened my target time to independence by a couple of years.  However, the reason that I was able to retire at such an early age is that I and my husband Jeff are savers and planners.

Throughout my career, the focus of all of our clients was on finding the best investments and on investment returns. However, I found an astounding lack of focus on saving. Saving and accumulating wealth has been my lifelong focus, because it doesn’t matter how great your investments are, if you haven’t saved enough.

I would love to see your stories about the financial decisions you have made, big or small. If you have a story (good or bad – we all make mistakes) please leave a comment. Check back here for saving and investing tips, interpretations of the financial news and economic statistics, fun and interesting facts, and stories about how we all make financial decisions.