A woman’s financial journey is not the same as a man’s, that’s why our wealth planning services includes financial advice for women.
We look at the foundations of women’s wealth and what is needed to protect it, at every life stage.
When wealth planning helps women thrive
While women are increasingly better educated than men, they earn less, feel less financially secure, have smaller pensions, face greater hardship in later life, and struggle to pay for their own old age care. Yet women’s financial resilience can be significantly strengthened by good financial planning and wise investments that target long-term goals.
Many people lack the confidence to take a proactive approach to managing their wealth. Often it’s just a question of knowing where to start.
Financial planning for women, is no different to wealth planning for men.
In many ways, it’s common sense. You need to do four things – set a budget, save a rainy day fund, get rid of expensive short-term debt and set some achievable long-term financial goals. Additionally, it pays to take into account career breaks for having children.
Four building blocks
Having a budget is the foundation of any financial plan, as it shows where your money is going and where you want it to go. That breaks down into essential and non-essential expenditure. The former is things like mortgage and rent payments, while the latter includes eating out, memberships and holidays, all of which you can reduce if you’re over spending.
Once you've established what you're spending, you should create a pot to cover financial emergencies. The idea is that if you suffer a difficulty in life, you have the time and resources to resolve matters. A startling fact is that the average household is just 24 days away from the breadline.1 So a fall-back fund is essential. We recommend that most people hold at least three months’ expenditure. If your income varies, you might want to hold a bit more.
Next comes getting rid of short-term debts, such as credit card debts. These usually cost far more than what you can earn in interest in the bank.
After putting your finances on a stabler footing, it’s time to think about life insurance, savings and investments. We insure our homes, jewellery, cars and dogs, but what we don’t insure is ourselves. A third of women haven’t taken out life insurance because it's not a financial priority or they think they don't need it.2 Yet three quarters of women also say that their household would struggle to complete everyday responsibilities or pay household bills if they were to fall ill or pass away. Depending on your exact concerns, a variety of types of life insurance can give you tailored protection.
The value of pensions
Pension planning is the next key stage in any wealth planning journey and is particularly important when financial planning for women.
Women save less than men. Women's pension pots tend to be 25% to 45% smaller when they reach retirement. Despite this, women remain reluctant to seek financial advice about retirement and that needs to change.
The days when employers guaranteed pensions on retirement are going: we now save through defined contribution schemes and bear greater responsibility for the destiny of our own pensions. You need to think about how much you should save, and how big your pension pot should be to achieve your retirement goals.
When planning for retirement, a number of things need to be established, some of which might change over time. First, when do you want to retire? A pension pot must last a lifetime and so the earlier you retire, the larger your pension pot needs to be. Second, how much will you need to live on in retirement? Thirdly, do you have any other income such as rental or investment income?
It’s also essential to consider the tax rules governing pension saving – both lifetime and annual allowances, as for higher earners they can significantly reduce the value of contributing to a pension. (The lifetime allowance is currently £1,073,100 and the annual allowance £40,000.) Consider a woman who’s an additional rate tax payer pre-retirement and a 40% tax payer in retirement, and is subject to both annual and lifetime allowance tax charges. Her contribution of £100 into a pension would only result in £24.75 in her pocket in retirement. For these women, it’s necessary to find other ways to build retirement funds.
Turning to the investment choices you can make, statistics show that women hesitate to move cash savings into the investment markets where they will work harder. This means women's savings are more at risk of being eroded by market forces such as inflation.
According to a recent survey by a major accountancy firm, wealthy women see fulfilling personal goals as an important financial priority. Building the right investment infrastructure is essential. Popular investment vehicles for doing so include pensions, individual savings accounts (ISAs) and offshore bonds, all of which have tax advantages. However, it’s also possible to hold a general investment account, which enables you to use the available tax allowances for capital and dividends.
Important information: Please remember that the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. Tax rules can change and the value of any benefits depends on individual circumstances.
In conclusion, clever financial management can help women thrive. Don't be complacent. Make your plan and stick to it.
You want to take an interest in your money and make it work for you.
If you missed our 'Women's Wealth' webinar, where our panel of financial experts at Mercer Private Wealth delved deeper into the topics above, please feel free to watch on-demand.
Alternatively, if you have any questions, please feel free to complete the contact form below and we’d be happy to help.
1. Deadline to breadline report. 2020. Legal & General.
2. Uninsured women. 2017. Scottish Widows.
The value of pensions for women’s wealth
Women's pension pots tend to be 25% to 45% smaller when they reach retirement.