Equality doesn’t mean treating everyone the same. We are not all the same, but we all deserve the same opportunities to succeed, which also applies to financial security.
Financial planning for women is a subject that is very important to me, as there is still a very real ‘pension gap’ today. Scottish Widows’ data released as part of their International Women’s Day campaign states the gap jumps from £100 to £100,000 over a woman’s working life.
They attribute the pension gap to three main factors:
-The gender pay gap – still at 7.7%*
-Childcare – 37% of mothers compared with 18% of fathers have left jobs to cover childcare **
-Working patterns – 47% of mothers compared with 15% of fathers have gone part-time to cover childcare **.
* Office of National Statistics data for 2023 ** Scottish Widow Women & Retirement Report 2023
Whether change is happening quickly enough is up for debate. Still, as a Financial Planner, I accept that I can achieve much more quickly by discussing possible helpful considerations than I can by quoting stats!
In general, women earn less, are more likely to take a career break, work reduced/part-time hours, and retire with smaller pensions. On top of this, women tend to live longer than men.
Long lives are not bad, but we now have to make less go further regarding financial planning.
Whether you are single, divorced, widowed, or keep your finances separate, the six points below will hopefully help you achieve financial confidence and security and, eventually, an equally enjoyable retirement.
1 – Identify your aims and objectives
What do you want out of life? What does the future or retirement look like to you?
Your aims and objectives are very personal and also likely to be changeable.
The further away from retirement you are, the less likely you will have a concrete idea of what you want to do.
Also, our priorities have changed. I doubt I’m the only one who has re-evaluated what is important to me the older I get.
We don’t always like to think about the future. It can be fun to enjoy the moment, but it’s much less fun to get too far down the line and find a severe lack of time to get on track.
A starting point could be focusing on what you don’t want.
Maybe you don’t want to work full-time until you’re 70. Perhaps you don’t know where you want to go on holiday, but you know you want to go somewhere lovely more than once a year.
Plan ‘A’ may not be the finished article, but it’s a start. After all, it is a woman’s prerogative, or privilege, to use the original saying to change her mind.
2 – Create a financial plan
The next step is to create a financial plan to get you on track to achieve those goals. Getting on track means pricing up what the rest of your life might cost.
It’s sensible to start with the necessities and basic living costs and then add the nice-to-haves.
Then we need to make an allowance for the unexpected one-offs; you know, the boiler packing in, the car breaking down or, as has recently happened to me, a dentist bill (we should ‘be more shark’ – spare teeth would be handy!).
Single life can be pretty expensive. A house for one is not half the price of a home for two.
Lighting and heating bills aren’t halved either. Holidays might involve single supplement charges too. My cruise certainly did (any excuse to mention it!)
Care fees might become a priority later, as you may have to buy help at home.
Once the outgoings are established, you can determine whether your current and future assets and income are sufficient. If not, what can you do about it?
Basic planning is something that you could look to do yourself, but working with a Financial Planner has many benefits:
-We have the knowledge and expertise to include certain assumptions around inflation, for example, making the results more realistic.
-We can model numerous ‘what if’ scenarios, so you are not limited to one version of your possible future.
-We can stress test these plans to see how robust they are. Would an additional unexpected expense be a non-event, or would it derail your plan?
3 – Build a cash reserve. Protect what you have.
It is vital for those living alone and responsible for their finances to have a sufficient cash reserve. There is no second income to make a stretch if needs be, and you cannot dip into someone else’s savings.
A common rule of thumb is to keep at least six months’ core expenditure as an immediate cash reserve. Depending on your other assets, it may be advisable to save more.
In this area, there is a need for balance. You should not keep back too much and risk inflation eroding your capital’s value while also not finding yourself short of cash if things don’t go as planned.
Short-term (3 or 6-month) fixed deposits can be handy here. With financial scams on the rise, keeping excess cash in savings accounts rather than current accounts linked to your cards is also a good idea.
It makes good planning sense to protect what you have. Where your income is the only money coming in, how would you get by without it? Do you need to insure it?
If you were to become ill, do you have any liabilities that would benefit you by being paid off in full?
4 – Educate yourself
You may be new to managing your finances. Perhaps you’ve never had an interest in the past. Maybe you are part of a couple and don’t think money matters are your concern. Perhaps right now, they’re not, but they very much could be at some point.
You don’t need to know your finances’ technical ins and outs. That’s my job. It does help to get a good grasp of what you currently have.
What options are available at retirement if you have a pension through your work? What is the pension invested in, and how has it performed?
What options are out there that might help you achieve your goals?
It may come down to knowing how to complete your tax return.
5 – Consider investing, or at least appreciate the impact of not
Another ‘women/men’ statistic is that women are generally more risk-averse regarding investments.
I’m not arguing with the statistics, but I believe that much of the reasoning is often due to a lack of understanding of investment risk.
Opportunities arise from risks, and controlling them is key. The key is to balance risks using a diverse range of investments across various asset types. Putting all your eggs in one basket, effectively gambling on one company’s success, is way beyond most people’s risk appetite – including men.
With education, professional support, advice and time, investing could be a helpful tool.
The alternative is to keep your cash in the bank. Interest rates are much higher than ever since the 2008 Financial Crisis.
However, you’d have to have been living under a rock not to have noticed that the price of everything is much higher than it was.
As the prices of goods and services go up over time, the buying power of your cash decreases. By not taking on investment risk, are you simply accepting long-term inflation risk?
6 – Look at your state pension
A full Manx State Pension is just over £11,500 per year. This income has some inflation proofing and will be paid from the state pension age (soon to be 67) for the rest of your life.
Your State Pension is an excellent foundation from which to work.
Suppose you have worked part-time, taken a career break at any point, or lived off-island. In that case, I recommend obtaining a state pension forecast and looking at any opportunity to maximise your entitlement if you are not currently on track.
If you have worked in the UK, you may have even more opportunities to boost your state pension income.
Progress
It will take years, probably decades, or longer (if ever) to level things out. But there is a shift in attitude.
The FTSE Women Leaders Review (released February 2024) shows that the FTSE 100 has made reasonable progress, with the number of women in the Combined Executive Committee and Direct Reports up to 35.2%. The FTSE250 also saw an increase, up to 33.9%.
There are still only 21 female CEOs across the FTSE 350, though, but this was always going to be the one that would take the longest to change as these are the highest-paid and most influential roles in British business, and turnover is low.
The gender pay gap is shrinking, albeit slowly.
Thankfully, the initial financial planning process is much quicker, and you can take charge of it now!
