So many theories – What’s the reality

How many times have you read a headline that fairly screams “retirement crisis” or some variation on that theme.  I often get the question – Am I saving enough? Or, How much should I be saving?  There are number of handy rules of thumb that can point people in the right direction but each requires a bit more understanding than simply a percentage or a dollar figure.

Let’s begin with a better understanding of where to start.  If you look at your paycheck the first number we need is your “net pay” which is how we will form our baseline.  Take that number and multiply it by the number of paychecks you receive each year then divide that by 12 for your monthly baseline cash flow.  That’s pretty simple math and it gives us something we can start to work with (a bit of a simplification, yes, I completely agree).  Rule of Thumb #1 – the higher that number, the more you should be saving.  Why is this?  For starters, Social Security is going to cover a higher percentage of a lower monthly amount than a higher amount. 

Let’s run through an example:  Let’s say your annual salary is $65,000.  Depending on your tax and insurance deductions (let’s leave your retirement savings out of it for now), your take home might be something in the range of $43,500 or $3,630 a month.  On the other hand, let’s say your annual salary is $95,000, your monthly take home might be something closer to $5,300.  If the average Social Security is $1,540/month, then you can quickly see that $1,540 covers a bigger chunk of $3,630 per month than it does $5,300 which means the higher earner needs to save more to make up the difference.

The next step is to consider whether or not you have a pension (and yes, there are still plenty of those floating around out there).  If you do have access to a pension and you are the lower earner in the above scenario, then you don’t need to save nearly as much as the higher earner does who might not have access to that pension.  This leads me to Rule of Thumb #2 – if you don’t have access to a pension, the more you should be saving.  Of course, having a pension isn’t fool-proof and you may want to be saving more to insulate yourself from the risks associated with non-government based pensions but that’s now a matter of choice rather than baseline survival.

So now we have some idea of how much we need and what structured resources we might have available so let’s turn to what we should be saving.  You’ll often hear “you should be saving 10% (or 15%, or 20%) of your income” or “you need to save up 10x your salary.”  That give us Rule of Thumb #3 – Target 10% of your salary since it is an easier equation to work with.  That being said, don’t forget that if you are receiving a matching contribution from your employer that counts towards your 10%.  If your income is higher and you don’t have a pension, you should be thinking about saving a higher percentage.  If you want to retire before your Social Security Full Retirement age, ditto.  If you want to retire before you are Medicare eligible or earlier, double ditto.  If you are getting started later in life, want to retire before you are Medicare eligible, and have a healthy income, perhaps consider couch surfing for a while so you can catch up on your retirement savings.

But what about all those “what’s your number” ads? So here’s the challenge with those – what’s the time frame leading up to that “number?”  What life expectancy is being use in that calculation?  What’s rate of return on your assets?  What rate of inflation is being used for your expenses?  All of your expenses, or is a different rate being used for your medical expenses?  What rate of inflation is being used on the Social Security benefits?  Rule of Thumb #4 – f you are using one of the many computer formulas available on line, make sure you understand how they are calculating what you need to save to make your “number.”

Of course, all of this starts with the making sure you have a good handle on your cash flow, have your non-housing debt eliminated (or under control), and are considering a retirement lifestyle roughly equal to your current lifestyle.  Here you have Rule of Thumb #5 – If you aren’t sure where to begin, begin at the beginning.  Start saving 1% of your pay (net or gross, your choice) and put a note in your calendar for three months later.  This lets your budget adjust for 3 months.  When that three months is up, increase your savings by 1% and mark your calendar out three more months.  Repeat this process until you’re saving at least 10%.  Can’t find 1% (or whatever you need)?  Come on in and I’ll help you find it (full & fair disclosure, my version of what you need in life is probably going to look different than yours….).

So there you have it – a solid five Rules of Thumb to bring some perspective to your long-term savings plan.  Draw yourself a little hand-turkey (remember those from kindergarten), label the fingers, and post it on your fridge as a reminder on how to secure your future.  And who said money isn’t fun!


On NerdWallet: Talking about debt with your partner

Are you worried about how to talk to your future partner about your debt, from student loans to credit cards? While the conversation may be difficult, it is important that couples have honest conversations about where you both stand financially. I was recently featured in an article on NerdWallet asking how couples can work to “lay it all out on the table” and provide a strong financial foundation for marriage.



Divorce: The Biggest (Financial) Decision You May Ever Make

Divorce is often a gut-wrenching process. It is also one of, if not the, most important decision you’ll ever make. The average divorce today takes about a year, sometimes longer, to resolve and it can also cost as much or more than what you spent on your wedding (in today’s dollars). Divorce also has the potential to be financially crippling, now and perhaps even more so in the future.

According to the Journal of Financial Planning, female caregivers are estimated to lose, on average, $324,000 in lost wages, social security benefits and pension. Unfortunately, after divorce, many women find themselves in a much lower financial position than their ex-spouses. Not only is this due to the caregiving roles many women have, it can also stem from a lack of clear understanding of the marriage’s total financial situation, such as the long-term investments the family holds, the family’s tax picture and actual family income. It would be difficult for any woman to make sound decisions, especially when faced with a divorce, if she is not aware of the complete financial picture.

Step 1: Understand Your Household Finances

One of the smartest things any woman can do is understand the family’s financial well being as soon as possible, no matter her situation. To get started, seek to understand what the assets are (stocks, property, retirement), what the actual family income is, and what are the family’s expenses. If thinking of a divorce, what maintenance (alimony) and/or child support would be needed to maintain your standard of living and cover your children’s needs?

Step 2:  Understand the Financial Implications

Even if divorce is just a whisper in your head, a clear way to help you make an educated financial decision is to engage the services of a Certified Divorce Financial Analyst (CDFA). A CDFA will help you review the family finances and guide the conversation to help you understand the short-term and long-term financial implications of the decisions you will need to make.

Remember…divorce is a negotiation. Amazon didn’t buy Whole Foods without understanding their market share, profitability, and liabilities. Kodak and Xerox didn’t spin off parts of their businesses without taking into account how that was going to impact their future bottom lines. Divorce is essentially the same thing. What you need to ask yourself is what is the level of maintenance can you realistically accept/offer and what does that mean to your cash flow?  How do you split the family assets to be equitable and what are the long-term ramifications of those decisions?

Step 3: Seek a Professional Divorce Team

Attorneys have their place during your divorce as they counsel you through the legal aspects. However, most people don’t realize that the majority of attorneys and judges do not have a strong financial background (few law schools require any financial classes in their curriculum). This makes picking the right attorney for your particular situation critical. A strong attorney will incorporate the work of a financial professional into the process.

Getting divorced is hard enough, working with a team of divorce professionals can ultimately reduce the cost of the divorce and reduce the time it can take to make that divorce happen. Most importantly, before making any decisions in terms of divorce be as prepared as you can…financially, emotionally and legally. I often suggest that women check out a local divorce advice workshop like Second Saturday.

Even if you are not thinking about divorce, understanding and staying on top of your family’s finances can help you navigate whatever surprises come your way.

Kitty Bressington is a CERTIFIED FINANICIAL PLANNER™ and Certified Divorce Financial Analyst®. She is the owner of Linden Financial Consultants, a fiduciary financial advisory firm, and founding member of Foundation for Women’s Financial Education.



NerdWallet’s Ask Brianna: Should My Partner’s Debt Keep Us From Marrying?

Financial debt shouldn’t keep you from getting married to your soulmate, but before you make your vows there are certain precautions you should take to ensure debt doesn’t hurt your marriage in the long run. I recently had the pleasure of contributing to an article on NerdWallet.com that discusses the steps you and your partner can take to manage your debt, including a few realistic life adjustments that can get you started.


 


What’s in Your Resolution Wallet for 2017

With the New Year, almost without fail, most of us make our resolutions and one of them probably has something to do with money. A common resolution is to “save more for retirement” that often, as weeks or months go by, turns into “I’ll set aside a few dollars after I do this or pay that….” Let’s turn that on its head and suggest that you spend this year getting a handle on how you are spending money.

Even with the economy rebounding, more Americans are stressed out about money than ever before and many women carry the weight of that burden. This financial stress is actually hurting us, both emotionally and physically. Financial stress is directly linked to high blood pressure, ulcers, headaches and depression not to mention it’s the second leading cause of divorce in our country. How about we take a different tack to that New Year’s Resolution and spend the year figuring out why we’re stressed?

For many people, one of the roots of this stress is simply not knowing where their money is going. Understanding where we are spending our dollars is the first step to understanding why we are spending those dollars. Are you eating out too often simply because you aren’t sure what to cook, or perhaps, as a newly single woman, you aren’t thrilled about going home to an empty house so you delay the inevitable by eating out.

Just like a personal trainer can help you get in shape physically, a financial coach can help you get fit with your money. They can help you understand your financial issues and habits and guide change in your behavior with your money. There are many great financial coaches but be sure to look for one that has had rigorous and comprehensive training.

This year, make your New Year’s resolution to understand how you spend your money so all your future years can be less stressful and more savings focused.


The Power of the Purse

For women, there are always those “things” you say you are going to do but life gets busy, work gets busy, one commitment or another invades your carefully structured day and those “things” get submerged under a sea of others on your To Do list. Sometimes though, something happens and you decide “yup, that’s just the kick in the pants I needed.” Well, it’s here and it’s time. I long ago acknowledged that I can’t change the world as a whole but I could do my best to make a change in my part of the world. Sallie Krawcheck, CEO of Ellevest, wrote a great checklist of how women can use their financial power to make small changes and I feel somewhat obligated to share some of it. I’m not asking you to do anything other than think about our predicament and decide if you are comfortable with the state of things not just for yourself but for your daughters, granddaughters, nieces, and best friends. If you are okay with them, then I stand ready to respect your opinion (because that’s what America is supposed to be about). If, perhaps, you are not complacent with recent events, and their subsequent potential impacts, then here’s a couple of things from Sally’s list to think about (I admit with a little editorializing on my part!). However, if we can just pick one as a start, we can make a change because women are the majority and we have the power to change things.

  • Mentor or sponsor other women, young or old.
  • Donate to a female candidate whose views line up with yours in the next election. Encourage other women to run for office or take a leap and run yourself. It doesn’t have to be President…your local town government impacts your world as well.
  • Buy from companies that promote women (check out BuyUp Index for suggestions).
  • Invest in companies that promote women. Help fund another woman’s business, perhaps a friend who has been thinking about starting her own business. Talk to your advisor about investment options. Perhaps, even, it’s time to switch advisors to someone who understands your concerns.
  • Think hard about not joining or quitting a company that has no successful senior females.
  • Talk to your kids about what’s going on. Help them make smart choices for their future as well as our own. Keep the conversation going by following up with them frequently because if we have had trouble seeing it for ourselves perhaps they will need need some reinforcement as well.

And I add one more to list, one that I feel is most important.
We vote every day, with every dollar we spend. Women make the majority of family spending decisions (over 80% of those decisions). It’s time we start voting with our dollars, every day, with every decision. Perhaps that’s not the easiest thing to do but doing the easy thing is what got us here. When it doesn’t work, it’s time to think about a change.

To view Sally Krawcheck’s full article visit: What Trump Could Mean for Women in Business.

‘Til Next Month,

Kitty Bressington

CERTIFIED FINANCIAL PLANNER™, Certified Divorce Financial Analyst®

On NPR: How To Keep Money From Messing Up Your Marriage

When it comes to money, discussions with your partner can be downright uncomfortable. Still, when it comes to your spouse, it is imperative to be able to have open dialog and communication. NPR asked for my input in their article discussing navigating the financial landscape of marriage, including a few tips from me on how to set some basic ground rules for you and your spouse to follow.
 

 


Your Life Changes…So Should Your Will

Just as our life and circumstances change with time, so should our legal documents. I often tell the story of my parents’ wills, which, at a point well into my adulthood, didn’t even mention my brother. It certainly wasn’t anything malicious on my parents’ part, but updating their will was just one of those things that never quite rose to the top of the “to do” pile as they worked, raised two kids, saved for retirement, maintained a home, took care of their parents, etc. Of course, being the generous, kind, benevolent sister that I am, I would never cut off my brother without a cent but not all families are like that. Even families with the best intentions can do strange things in the face of grief and mourning. By updating your will, you have the sole discretion over how your belongings, assets and estate should be distributed, which can help your family avoid any unnecessary turmoil.

This month, take a moment to dig out your will and see if it needs updating. Our lives change…there are births (kids and grandkids), marriages (first, second, third), divorces (first, second, third), and deaths (in every generation). There are also things we overlook. Perhaps you have a loved one who is in a nursing home on Medicaid or a child with emotional challenges living on assistance. Leaving a bequest in your will could be problematic. Also, did you know that the person you designate to raise your kids doesn’t have to be the person in charge of the money you left for them? Your appointed guardian may be great with kids but lousy with money so why risk your children’s financial future.

While you are at it, how about putting together an outline of your last instructions? Families often have a hard enough time dealing with loss. If you put your wishes on paper it can provide a sense a relief to your loved ones and give them some much needed direction during a difficult time. For example, do you want to be buried or cremated? Scattered or interred? A funeral or a traditional Irish wake complete with single malt?

It’s not fun topic to discuss, but we cannot evade death…whether we’ve talked about it or not. And, putting your wishes to paper doesn’t make it happen any sooner. Your will is a necessity that can save your family time, money and grief. Plus, it gives you the peace of mind knowing that your wishes will be clearly followed. Sometimes it is just about knowing how to get started – any good advisor can put you in touch with an estate attorney and will even walk through the process with you.