Journal of Financial Planning: June 2022
Alexandra Armstrong, CFP®, CRPC, was one of the first female CFP® practitioners in the United States, as well as the first female president of the IAFP (precursor to the FPA). She founded her financial planning firm in 1983 in Washington, D.C. Since then, she has focused on helping women achieve financial independence. She is the coauthor of Your Next Chapter: A Woman’s Guide to a Successful Retirement and On Your Own: A Widow’s Passage to Emotional and Financial Well-Being.
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In my last two articles, when I discussed housing considerations for women in retirement (August 2021 and November 2021), I worked under the assumption that most retirees downsize when they retire. However, after reading an extensive article in The Wall Street Journal (Keates 2022), I realized that this wasn’t universally true. In fact, this article described some empty nesters who decided to buy a much bigger home instead of moving into a smaller, lower-maintenance home for their golden years.
According to the National Association of Realtors, 35 percent of people aged 65 or older bought a 3,000 square-foot or larger home in 2020, compared with only 23 percent in 2017. These older, affluent retirees said they had more money to spend on a larger home now that they were no longer raising children and they didn’t have to worry about the quality of the school district anymore. Many wanted a larger home to entice grown children and grandchildren to visit. Others wanted to make room for live-in caregivers or their parents. And some just wanted more room for themselves now that they would be spending more time at home.
In the same issue of The Wall Street Journal, there was another article about retirees trading their homes in suburbs for luxury condominiums in downtown city areas (Clarke 2022). These retirees weren’t ready to move to a retirement home; instead, they wanted to be around younger people and activities, which they believed would keep them younger.
With people living longer, I would suggest that these approaches might work well particularly for the affluent retiree in their earlier retirement years, but eventually these people might get to the next stage of their lives when they want to downsize. The reason I introduce these contrarian points of view is I think we need to be aware of this alternative approach, which your clients might want to explore.
The Changing Role of Women
As we all know, over the past 75 years, women’s roles in society have dramatically changed. Women started working outside the home in World War II, when it was necessary for them to join the workforce and take jobs traditionally undertaken by men while the men served in the military. After the war, many women found they liked working for several reasons. They enjoyed the work, they contributed to the family income, and their salaries also provided them with some financial independence.
Fast forward to today, and women outnumber men graduating from college. By 2019, more than half of law school and medical school graduates were women. Today, women are CEOs of major corporations, managing partners in law firms, senators, governors, respected physicians, high-ranking officers in the military, and Supreme Court justices.
Women Lack Confidence in Long-Term Investment Decision Making
And yet for all the progress women have made in their careers, according to Fidelity Investments’ “2021 Women and Investing Study,” released in July 2021, many women fall behind when making investment decisions. According to this study, many of the women surveyed felt confident paying the household bills but were less sure of themselves when it came to long-term planning and investing. Specifically, only 31 percent of this group felt confident planning for financial needs in retirement.
The study was conducted among 2,400 American adults (1,200 men and 1,200 women) 21 years or older who had a personal income of at least $50,000 and were actively contributing to a workplace retirement savings plan. An independent research firm not affiliated with Fidelity Investments prepared this report.
A UBS report released in May 2021, “Building Bridges, Breaking Barriers,” indicated that nearly half the women surveyed (48 percent) said their spouse takes responsibility for long-term financial decisions such as investing, and financial and estate planning. (This report surveyed 1,500 high-net-worth men and women in marriages or partnerships.) It found that only 20 percent of couples participate equally in financial decisions. According to this report, women defer to spouses because they believe they lack the knowledge (82 percent), the interest (73 percent), or the time to participate in the financial discussions, as they largely shoulder the burden of household responsibilities (78 percent).
Is There Hope for the Future?
I don’t know about you, but I found these studies deeply disturbing and discouraging. Surely, with higher levels of education and career advancement, younger women were different than older women when asked about investments. But to the contrary, the UBS study indicated that half of millennial women (51 percent) state that their spouse was responsible for long-term finances. However, nearly all (94 percent) millennial men wanted their wives to be more involved in these decisions and 69 percent of the millennial women who currently defer also wanted to be more involved—showing there is room for progress. My theory is that working women regardless of age are just too busy juggling family responsibilities as well as meaningful careers to be involved in long-term investing: they feel if this is one thing they can delegate to their male counterpart, let him have it!
When I delved more into the Fidelity study, it showed some progress had been made since the last time they did a study of women in 2018. In 2021, 67 percent of women were investing outside of retirement, up from 44 percent in 2018. In other good news for planners, the Fidelity study said that 77 percent of women believe that if they had a financial adviser to help them invest, they’d be more confident about their financial future. And 71 percent said once they had set up a financial plan, they felt more confident.
Implications for Financial Planners
I can hear you saying that you don’t know who these women are who have been interviewed for these studies. Your female clients are interested and involved with their investments and are confident when making long-term financial decisions. If married, they make joint decisions with their husbands. And if this is so, this is great.
Certainly, as the Fidelity study indicated, the situation appears to be improving, and more women participate in long-term investment planning. However, I think we should be aware that there is still a knowledge and confidence gap for some women. In fact, it is my conviction that the statistic often quoted that a significant percentage of widows leave their adviser when their spouse dies is due to the fact the adviser hasn’t made an effort to listen to and educate them. It is our job to help these women be involved in the long-term planning as well as investment selections.
Don’t assume that your female clients who have successful careers know a lot about investments. Make sure when you meet with a married couple that you involve the woman. Ask her as many questions as her spouse about what they envision for their financial future. Tactfully ascertain her level of financial knowledge and don’t be condescending. Find out how much risk she is comfortable taking. What is the legacy she wants to leave their children? Does she understand the impact of taxes on cash flow? Be sure that she understands why you are making the investment recommendations you are making.
Importance of Being Financially Knowledgeable
You don’t want to depress clients, but as we well know, the statistics indicate that the female partner will outlive their spouse. How much better for her to understand the financial part of her life so that if she does become widowed, she is in control of that part of her life.
Recently, this came home to me with a client who was married to a retired senior partner of a law firm. Although she attended all our investment meetings, she left all financial decisions to him. To be fair, she had had a bout with cancer and assumed she would die before him, so she saw no need for herself to know more. When he died suddenly of a stroke, she told me how sorry she was that she hadn’t been more involved and asked me to help her understand what she had previously ignored.
Women Are Good Investors
As I tell my female clients, investing is not rocket science. You don’t need to know calculus to be a successful investor: simply basic math and common sense. There really isn’t anything in the male genes that makes them better investors than women. In fact, according to both these Fidelity studies of women, their investments did better than their male counterparts. Analysts indicated that this performance was due to several factors:
- Women are less inclined to take risk and more likely to do research before investing.
- Women are more patient and take a longer-term view then men.
- Women tend to buy and hold rather than trying to time the market.
- Women look at life goals versus focusing on investment performance alone.
Conclusion
I am sure that someone reading this article five years hence will be astonished that there was this confidence and knowledge gap among women. I am glad that more people are focused on this problem, and I am sure it will disappear—but it is our job to make sure that it does.
References
Clarke, Katherine. 2022, March 23. “These Retirees Won’t Settle for Sleepy Suburbs—They’re Moving to the Big City.” The Wall Street Journal. www.wsj.com/articles/retirees-in-cities-11648063831.
Keates, Nancy. 2022, March 24. “These Empty-Nesters Are Upsizing to Their Forever Home.” The Wall Street Journal. www.wsj.com/articles/upsizing-for-retirement-11648135790.
