Last Week’s Question of the Week: What is the due date for American’s to file their 2020 income taxes in 2021?
ANSWER: 2021 Tax Due date is April 15, 2021 for 2020 taxes!
HOST: I know that one of the things your company does really well is empower people with knowledge as to how to understand their finances, and plan for their retirements. But today you are segmenting your discussion as you examine specifically women, and what women should be aware of and possibly doing.
KLAAS FINANCIAL: Yes, it is important for us to step back sometimes and direct our conversation specifically towards one demographic. Today we want to identify some areas that women need to make sure they are on top of which is their household finances and the resources that will be there for their ultimate retirement. In 2018, a UBS Poll found that while 85% of women manage everyday expenses, only 23% take the lead when it comes to long-term financial planning. Even though women are more proactive with everyday household finances, it is critical that they also set themselves up for financial success in the future.
According to McKinsey & Company, women today control a third of total US household financial assets—more than $10 trillion, and by 2030 it is estimated that women will control nearly $30 trillion that will be passed by baby boomers.
Today we are going to explore four retirement planning issues that confront both men and women, but today we will focus primarily on women.
2. Gap in Earnings affecting Future Social Security Benefits
3. Health Care Costs
4. Participating in Household Finances
If you are a 65-year-old woman today, statistics suggest that you have almost 21 years of life left, as compared to an average male who has about 18. Hence there are a few more years of retirement that women need to fund. So, if you are married you may outlive your spouse and become solely responsible for your own healthcare and household expenses. The financial burden for not sharing expenses can take a toll on your savings.
LESS in EARNINGS: Since women today still only earn on average, 82 cents for every dollar a man earns, over time this can definitely impact future retirement numbers. Understanding that many women stayed home for some time caregiving for children, and in later years tend to become the caregivers for their elderly parents or in laws, all of which affects future social security income benefits. Understand that Social Security looks at your 35 highest earning years to calculate your monthly retirement income benefit. If you have a spouse, you will either collect your own benefit or ½ of your spouses, whichever is higher. But upon losing a spouse your household will collect only one benefit going forward.
HEALTH CARE COSTS: According to Fidelity investments annual retiree health care cost estimates in 2018, suggests that women (due to longevity) can expect to spend $147,000 in health care costs during their retirement, these are costs NOT covered by Medicare. Keep in mind that this figure does not include potential long-term care expenses. Again, this is important for women who are planning for their retirement.
HOST: Another area you mention is the lack of women who participate in understanding and dealing with their household finances. Why is this an issue?
KLAAS FINANCIAL: Yes, we see this situation quite often. Whether it be male or female, the fact is that while there most certainly will be one lead person to handle most of the finances in a household, the other person really does need to be generally aware of how finances are handled, and where money is invested, and how your accounts will eventually be providing your future retirement income along with your social security and/or pensions.
Again, back to the UBS poll we mentioned earlier that suggested that women tend to let their spouse take the lead on financial matters. This is a problem because what can happen as a result is that women are left in the dark on debt levels, life insurance awareness, and retirement readiness. If a woman finds herself getting divorced or becomes widowed, all of these financial issues to suddenly understand can be overwhelming.
So, our advice is this:
1. If you are married, take an active role in financial decisions in your household. Again, just be aware of what’s going on. Review monthly or quarterly with your spouse and understand what your debts currently look like (mortgage and auto loan amounts) , and how your assets are currently invested. Review monthly or quarterly financial statements for verification that you know where assets/debts are located whether it be in banks or other financial institutions.
2. Take a look at the investment risk that your household is taking. Are you comfortable with this? Women tend to be more conservative investors (risk adverse) then men, which may or may not be a good thing.
3. Monitor your credit. Again, doing this allows you to track how things stand, and also makes you aware of any potential identity theft.
4. Review your savings, and emergency funds. Do you have 6 months of savings?
5. Review any life insurance or long-term care insurance policies. Understand what you have and what you don’t have. Understand if some policies have lapsed, or are you paying current premiums on them.
6. Review beneficiaries on all of your accounts. Are you and your spouse each other’s beneficiary for investments and life insurance and retirement plans at work?
7. Make sure you have a retirement plan in place. A retirement plan answers questions as to when you can stop working, and how much you might expect to spend each year. You will get a projection that details what your future income will be comprised of.
8. Remember that a man is not a retirement plan!
9. SPEAK UP! Many times, today, women still have a hard time discussing their finances. According to a 2015 Fidelity Investments Women’s Study, 56 % of women said they refrained from discussing finances because the subject is too personal, 27% said they were raised to not talk about finances; and 10% said they don’t understand or know how to talk about it intelligently. Find someone that you can trust and that will listen to you and your needs.
HOST: What other advice can you give to women regarding their retirement planning?
1. Yes, simply being aware of retirement benefits that you may be entitled to as a widow or ex-spouse. Contact the Social Security Administration to review your options.
a. If you are the widow of a Social Security beneficiary, you can generally receive retirement income benefits based on your spouse’s work record. Divorcees may also be eligible if married for at least 10 years.
b. If you are in the process of divorce, or get divorced in the future, you might be entitled to a portion of your spouse’s retirement savings or pension income. Speak to your attorney about what makes sense given your situation. You should be aware of the option to make an informed decision.
2. Estate Planning- Do you have a Will or Trust in place? Do you have assigned Power of Attorney’s for health and property? If not, do this. If yes, review what the current documents read.
3. Planning for LTC Care:
a. Again, with longevity, it may be prudent to explore the possible need for LTC insurance to cover future costs.
4. Have you considered your own funeral? Planning for this will leave your loved ones in a much better place.
Money in Motion Listener Question Corner
HOST: Martha wrote in the following question: “How important is my credit score and what should I know about having one?”
KLAAS FINANCIAL: A credit score is a numeric rating that creditors use to assess borrower risk in making lending decisions. The most commonly used credit score is from FICO. This rating is defined by how much debt you have, whether you pay your bills on time, how many credit cards you have and any unpaid bills, among other factors.
Your credit score (which can range from 300 to 850) affects most financial decisions: Buying a car, buying or renting a home, getting loans and opening new lines of credit require credit score reviews by the people or companies who can grant you any of those grown-up things. (For example, if you have a poor credit score, a landlord may be less inclined to rent to you.)
You can check your credit score in addition to your credit report at least once a year to make sure it’s accurate and reflects credit cards or debts you actually have (and that no one else is using your name — and your credit — to buy random cars). You can check your score for free at www.annualcreditreport.com once per year which looks at Experian, TransUnion and Equifax. You can also go to www.creditkarma.com to check on your accounts and credit score at any time.