Three things Ladies should think about to improve their finances
They say men are from Mars and women are from Venus, but does that really matter when it comes to our money?
Do women need to think differently about their savings, investments and retirement? The short answer is, yes.
Much like a car accelerates and decelerates, in life we have our ‘accumulation’ years - the time spent building our wealth by working, saving and acquiring assets like a property.
Once we reach retirement, we enter the ‘decumulation’ phase, drawing income from the savings and pension pots we have built up during the accumulation years.
What you’re left with to ‘decumulate’ once retirement sets in, will to a large extent be a result of what you’ve managed to ‘accumulate’ during your working years.
And, here’s the rub: women face very different challenges to men in their accumulation years, which ultimately impacts how much they’re left with one day.
These challenges range from the fact that women, on average, still earn less than men, leaving them with less to save.
Many women will take time out from the job market to have children which will inevitably impact their earnings potential and the size of their pension savings.
And, even if children aren’t for you, you might find yourself taking a career break to care for a sick or elderly relative - it’s a well-established fact that women are still the primary caregivers
If you’re struggling to see the problem, you need only look at the numbers, which reveal a glaring gender divide when it comes to our pension savings - women, on average have around a 25 per cent lower income than men in their first year of retirement. (Yet, women on average are expected to outlive men.)
So, yes - women do need to think differently about their finances. The first thing you need to do is tackle that female tendency of putting everyone’s needs ahead of your own and start to give your financial future more than just a fleeting thought.
Here are three important things women need to think about when it comes to their money:
1. Invest and don't just be a diligent saver
Who are better savers - men or women? Well, based on the latest ISA statistics from HMRC it appears to be women. The numbers reveal that far more women hold ISAs than men. But drill deeper into the figures and you’ll see where the female half of the population messes up.
Women hold far more in cash ISAs compared to men, who are more inclined to hold a stocks and shares ISA.
There are many possible reasons why women still prefer to stash their money in cash - it could be a lack of confidence when it comes to investing, or it could be the fact that because women still earn less than men, they’re more hesitant of taking greater risk with their hard-earned savings.
Either way, it means the ladies are losing out over the long term. Years of interest rates languishing at paltry levels have turned cash from a so-called ‘safe haven’ into a sinking ship. In Britain, what cost £100 in Jan 2009 now costs £119. Yet £100 in the bank has grown to just £104.
2. Mind the state pension gap
Few of us spend much time thinking about our state pension, assuming that when we reach the state retirement age, this money will miraculously appear without much hassle or headache. But, there are few important things women need to be aware of when it comes to the state pension.
Changes to the women’s state pension age, which is rising from nearly 63 now to 65 by 2018, mean only 80,000 women will receive the new flat-rate State Pension from 2016 to 2018, compared with 390,000 men.
It’s also worth noting that the size of your state pension will depend on the years of national insurance contributions you have clocked up over your working life.
Under the new single tier state pension system, you will need 35 years of NI credits to qualify for a full basic State Pension (it used to be 30 under the old system). Check your NI record and see if there are any gaps that need to be plugged.
Finally, don’t let having children dent your state pension. This can happen by failing to fill in child benefit forms. Families where one parent earns more than £60k can no longer claim child benefit without facing a tax charge
However, if you fail to apply, you won’t get the national insurance credits towards your state pension. So while women may not end up with money in their pocket, by submitting the form you will be banking state pension entitlement.
3. Don't just rely on your partner
Forget until death do us part, these days it’s more likely, until retirement. For both men and women, the average age of divorce has been rising by about three months every year over the past decade - it’s up around 10 years since records began in 1950.
People are marrying later in life and living longer and as a result are more exposed to divorce at older ages. Divorce is also no longer seen as the social taboo that it once was. These factors have given rise to the so-called ‘silver separators’ - from 1990 to 2012, those aged 60 and above filing divorce papers rose by more than 85 per cent.
Whatever your age, a divorce can be stressful and burdened with financial worries, not least of all having to face the acrimonious task of splitting your assets. For the over-60s, the financial ramifications can be devastating.
Women, who have been stay-at-home mums or let their husbands manage the finances during a long marriage, need to ensure a fair separation of wealth.
Where the main pension holder and breadwinner is the husband, ex-wives are often awarded a one-off lump sum or matrimonial home to manage.
But substituting a pension income for a property can be risky and a very short term strategy - a far more prudent approach is splitting the pension pot - there are different routes you can follow and it’s important to understand each option.
Most importantly, women need to invest and have financial plans in their own right. If you are raising children and managing the family home it is unlikely your savings and pension benefits will be vast.
Remember ladies, you’re likely to live longer than your male counterparts, so make sure retirement savings last for as long as you do.