Women, Wealth, and Retirement

One of my very first financial planning clients was a single woman in her late 40s named Rachel who lived in Toronto and worked as a self-employed consultant to the not-for-profit sector. She made good money but lacked the confidence to manage her day-to-day finances and save for the long term.

Moreover, Rachel provided care for her aging parents and was under a tremendous amount of stress – enough for her to worry about her own health and whether she could maintain her current workload.

We worked together to establish a budget and cash flow projections for the next 12 months. During that time, we checked in monthly to ensure her income and expenses were on track and updated her plan accordingly.

Having always come from a place of fear about her financial future, Rachel quickly realized the path was not as bad as she once made it out to be. Most importantly, I never made her feel bad for things she didn’t understand – I just offered support and encouragement, along with tools that were easy to understand and implement.

After just one year she felt empowered about her finances and confident about her financial future. This new-found confidence also shone through her consulting business as she managed three straight years of record revenue growth to help further strengthen her financial position.

Meanwhile, her parents’ health continued to decline and so Rachel decided to scale back her workload and spend more time with her mom and dad. Now she only works on enough projects throughout the year to reach a specific annual income target that meets her monthly spending and savings goals. She has enough confidence in her financial plan to turn away other business opportunities to focus on her well-being and spend more time with her parents.

Rachel now joins a growing list of financially well-prepared Canadian women. Earlier this year, RBC Insurance conducted a survey of Canadian women over the age of 45 with household income of $60K+. The survey found that women are relatively well-prepared financially, but still express varying degrees of confidence when it comes to their financial future.

Highlights include:

• The majority of women over 45 have a very clear idea of what they would do with a sudden lump sum of money, with only a quarter worry about being able to manage the money properly.
• Canadian women have also mastered the household money matters. More than nine in 10 (92 percent) agree they have a strong understanding of their finances.
• Yet despite this, 24 percent say they won’t be able to maintain their household’s financial situation if their spouse or partner were to pass away and one-third are not confident that they will be able to afford the lifestyle they want to live through retirement.
• Interestingly, single women were only slightly more likely than married women (36 vs. 34 percent) to cite a lack of confidence in their ability to afford their lifestyle in retirement.

Retirement planning is a challenge in any household, let alone one in which a spouse dies early. If that spouse happens to be the household’s chief financial officer, what’s the surviving partner to do?

Even though I manage our day-to-day finances and retirement savings I do want my wife to have an understanding of our financial position – both current and future. I want to set up our finances in a way that’s easy for her to manage in the event of my untimely demise. I also want to ensure that she can maintain a comfortable lifestyle in retirement.

I’ve made sure to include my wife as the beneficiary on my RRSP. That way, if I died, she could have my RRSP assets transferred to her RRSP through a tax-deferred rollover.

I have a term life insurance policy in place that will be enough to pay off our existing mortgage and provide another $300,000 or so to live on.

I also have a defined benefit pension through my current employer. If I died, she would receive 2/3 of the pension I was receiving for the rest of her life.

Annuities: A Missing Piece of the Retirement Puzzle?

The idea of guaranteed income for life is appealing to me as a way to simplify our finances in retirement. I might not have the sharpest mental faculties as I get older, and my wife would be reluctant to manage a do-it-yourself portfolio of investments.

An annuity provides a predictable income stream for life. Nothing protects you from longevity risk quite like guaranteed lifetime income. Annuities aren’t subject to the whims of the stock market, so you’ll get paid regardless whether markets rise or fall.

Finally, for women like Rachel who are not as confident with investing in the stock market, an annuity can help “pensionize” a portion of her nest egg. Unlike an investment portfolio, an annuity does not need to be managed once it has been purchased. You can even stagger your annuity purchases to help increase payouts.

Curious about annuities in retirement? Read more here.

Final thoughts

Women face unique challenges when it comes to saving for retirement. They often face lifestyle and economic issues that require special consideration. Women tend to earn less money than men and take more time away from the workforce to care for family members, giving up their income stream and losing out on raises and promotions. They are less likely to have access to retirement benefits at work, plus they live longer than men.

Single women face other retirement planning challenges, whether they’ve always been single, or are now divorced or widowed. Singles can’t count on a spouse’s income to help increase their retirement savings or take advantage of tax splitting and credits. Plus, they are shouldering all the costs of pre-retirement living themselves.

They’re entirely on their own to make sure they are financially secure. It’s no wonder they’re worried.

This doesn’t mean a comfortable retirement is out of reach. But it does mean extra planning for your financial future.

Start with a realistic look at your financial resources. How long will you need to work? Should you change careers to generate more income? Determine whether you’ll need to pare down discretionary spending or explore alternate living arrangements, either now or during your retirement years.

Take control of your finances now by learning about budgeting, cash-flow, and retirement savings. Do it on your own or with a trusted advisor. Take these steps and you’ll soon feel as confident and empowered as Rachel does about her financial future.

This post was brought to you by RBC Insurance. All opinions are my own.