Welcome to Season 3, Episode 4 of Meet the Expert® with Elliot Kallen!
In this episode, Elliot Kallen brings on Tiffany Dyson to delve into the unique challenges of women’s wealth. Women face various obstacles in financial planning due to social, cultural, and economic factors. They discuss the impact of longer life expectancy, income gaps, and caregiving responsibilities on women’s financial plans. The conversation also covers financial planning across different life phases and the importance of empathy and communication in addressing the needs of diverse clients.
Listen to the podcast here
Meet Our Guest
Senior Practice Management Specialist | Putnam Investments
Tiffany Dyson is dedicated to helping financial advisors adopt a holistic approach for their clients. Passionate about expanding financial literacy and promoting equity, she develops resources to enhance the client-advisor relationship through engagement ideas and educational seminars. Prior to joining Putnam, Tiffany studied Sociology and Spanish at Dartmouth College and played Varsity Softball. Her work focuses on leveraging social media, increasing client-based diversity, and fostering customized client experiences.
Understanding the Financial Challenges Women Face
Financial planning can be unique for every individual regardless of gender. However, there are social, cultural, and economic factors that make financial planning different for women versus men. Key factors include longer life expectancy, income gaps, and caregiving responsibilities.
The Impact of Longer Life Expectancy on Women’s Wealth
- Women tend to live longer than men, with a woman turning 65 today expecting to live around 85 or 86 years on average, compared to a man living at 82 or 83 years old.
- When women live longer, healthcare costs may disproportionately impact them.
- Not only are they paying for medical bills over more years, but they also face more expensive medical bills as healthcare costs tend to increase with age.
- This creates a challenge for women who haven’t properly planned for these additional expenses and years of retirement.
The Income Gap and Its Effects on Retirement Planning
Progress has been made in reducing the wage gap between men and women, but women still earn less for every dollar that a man earns. Today, white women earn about 82 cents for every dollar a man earns, with even lower figures for Black and Hispanic women at 63 and 50 cents respectively. Lower career earnings result in less retirement income, requiring extra diligent planning for women.
The Financial Implications of Caregiving Responsibilities on Women
Most caregivers are women, and these responsibilities add an extra layer of complexity to their financial planning. If a woman reduces her work hours, gives up a promotion, or temporarily leaves the workforce to provide care, this can impact the amount of money she accumulates and her social security benefits.
Financial Planning for Women Across Different Life Phases
There is no one-size-fits-all approach to financial planning for any age or generation. In Putnam’s financial guidebook for women, we categorize the three phases of a woman’s life into growing literacy, accumulating wealth, and distributing wealth, which aligns with the 40s, 50s, and 60s age groups in your question. Each life phase presents unique challenges and opportunities, and it’s important for advisors to take a holistic approach, considering the whole picture to prioritize financial planning effectively.
It’s essential to remember that women may reach different financial milestones at varying ages. Starting with women in their 40s, many are either in or approaching career heights and balancing significant financial responsibilities. They might be paying down mortgages, preparing children for college, working on retirement planning, and budgeting for everyday expenses, all on top of their daily responsibilities.
With numerous factors to consider, women in this phase must diligently work on their financial plans. Important actions include annually reviewing retirement accounts, adjusting contributions based on cash flow needs, and ensuring beneficiaries are designated, especially as children approach adulthood.
The Impact of Caregiving Responsibilities on Investing
There are undeniable links between caregiving responsibilities and investing tendencies. A recent AARP article highlighted that family caregivers spend an average of 23 hours per week on caregiving duties, equating to a part-time job. These responsibilities can significantly influence how caregivers approach their investments.
Caregivers must consider not only their own financial needs but also those of the person they are caring for. This situation can lead to lower risk tolerance and a more risk-averse approach to investing. When making decisions on behalf of another person, particularly someone who may not be working or is unable to work, caregivers tend to be more cautious and protective by nature, which affects their investment strategies.
The Importance of Financial Advisors for Caregivers
Caregivers may face time constraints, limiting their ability to engage with investing and properly monitor or adjust their portfolios frequently. This challenge is one reason why caregivers could greatly benefit from having a dedicated financial advisor at their side. Financial advisors can help navigate the complexities of investing while balancing caregiving responsibilities, ensuring a more secure financial future for both the caregiver and the care recipient.
Many clients are not alone in facing the challenges of the sandwich generation, with almost half of the adults in their 40s and 50s either raising a child or financially supporting an adult child while having a parent aged 65 or older. The increasing trend of living with nuclear families exclusively adds to these challenges.
Critical Considerations for Financial Advisors
There are two critical aspects that financial advisors should consider when addressing the sandwich generation’s basic needs and short and long-term investment needs.
Firstly, advisors must understand the extent of their client’s caregiving responsibilities. During the discovery process or initial communication, include questions about caregiving in the client’s life. As situations change, return to this topic during annual reviews to maintain an accurate understanding.
Failing to discuss caregiving can have detrimental consequences, as seen in cases where advisors only learn about a client’s role as a financial decision-maker for a parent during funeral arrangements. Financial advisors can help caregivers manage their finances and alleviate some of the burden.
Secondly, advisors should address financial priorities with a multi-generational lens, understanding the priorities and roadblocks clients may face due to caregiving responsibilities. A recent Bankrate study revealed that nearly 70% of parents lending to adult children make financial sacrifices, with over 40% withdrawing from their retirement savings despite early withdrawal penalties.
Advisors can help clients be more informed about such financial decisions and discuss whether they can afford to assist their adult children. By being mindful of the unique challenges faced by the sandwich generation, financial advisors can provide valuable guidance and support to clients navigating these complex circumstances.
Never Assume: Effective Communication with Female Clients
As a financial advisor, it’s crucial not to assume or generalize women’s investing competence compared to their male counterparts. The key is effective communication with clients: ask questions, be open, and explore their knowledge and curiosity. Based on their responses, provide appropriate resources, tools, and education.
Recognizing the Changing Landscape of Women and Finance
For advisors working with women from older generations, it’s important to remember the financial world has only recently opened up for them. For instance, women could only apply for and open a credit card in their name without a male cosigner since 1974. This progress, less than 50 years ago, highlights the evolving landscape of women and finance, and it’s exciting to consider where the next 50 years will lead.
Financial Planning for Divorcees and Widows
Financial planning for divorcees and widows differs based on factors such as risk tolerance, time horizons, and financial literacy. Younger divorcees and widows may have more time to recover financially or enter the workforce, benefiting their retirement plans.
With a longer time horizon, they may also take a more aggressive investment approach to achieve their financial goals. By understanding these unique circumstances, financial advisors can better support and guide their clients toward financial success.
The “I Love You” Letter: A Valuable Resource for Advisors
The “I Love You” letter is a helpful resource for advisors to initiate conversations with clients about crucial financial information. This comprehensive document provides spaces for clients to record essential details, such as the location of wills, contact information for trusted advisors, liabilities, assets, and life insurance policies. By using this tool, advisors can bridge communication gaps and help clients prepare for emergencies, making a lasting impact on their client’s lives.
Creating Safe Spaces for Open Communication
Advisors should tailor their communication styles according to their client’s preferences. By being transparent and asking clients about their preferred cadence and style of communication, advisors can demonstrate that they value feedback and are committed to implementing it. This approach fosters trust and appreciation between the advisor and their clients.
Advisors can also help create a safe space for clients to discuss their concerns and fears regarding aging and finances. Some advisors even collaborate with therapists or professional facilitators to conduct family meetings, ensuring all relevant parties are informed and prepared for emergencies.