women and wealth: a practical approach to financial ...... · women in retirement: the facts . 1...

Women and Wealth: A Practical Approach to Financial Security at any Age

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+ Unique Challenges Facing Women

+ Six Strategies to Consider Today

+ A Word About Life Transitions

+ Take Action

Agenda

Women and Wealth: A Practical Approach to Financial Security at any Age

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Unique Challenges Facing Women

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+ 90% of women will be solely responsible for finances at some point in their lives1

+ There are twice as many women as men in the age group of 85 or older.2 Eight out of 10 centenarians are women3

+ Widows accounted for 34% of all older women in 2015. There were more than three times as many widows as widowers4

+ Nearly half of women (44%) are the primary breadwinners in their households, and 27% of married women now say they “take control” of financial and retirement planning5

Women and Financial Responsibility

1 “What Millennial Women Can Teach You About Financial Security,” Kim Kiyosaki, RichDad.com, June 2, 2016012, 2 “Fact Sheet,” National Education and Resource Center On Women And Retirement Planning, 2012 3 aaltci.org, 2010 4 U.S. Department of Health and Human Services, November 2015 5 Prudential, “Financial Experience and Behaviors Among Women Study, 2014-2015

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+ Women make up 47% of the total civilian labor force and represent a majority of those in professional and technical operations (51%).1

+ There are 9.1 million women-owned businesses in the U.S. generating nearly $1.4 trillion in revenue2

+ Women-owned firms account for 31% of all privately-held firms2

Our New Role: Emerging Leaders in the Workforce

1 U.S. Census Bureau, DataFerrett, “Current Population Survey,” Monthly Microdata, December 2014. 2 “The State of Women-Owned Businesses Report,” American Express Open, March 2014

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+ 45% of American millionaires are women1

+ The number of wealthy women in the U.S. is growing twice as fast as the number of wealthy men. Some estimate that by 2030, women will control as much as two-thirds of the nation’s wealth1

+ Women-owned firms account for 31% of all privately-owned enterprises, employing 7.8 million Americans2

+ Women control 27% of the world’s total wealth. In the U.S. alone, women control $11.2 trillion, or 39% of the country’s investable assets3

+ About 51%, or $14 trillion, of American personal wealth is now controlled by women. Women are expected to control about $22 trillion by 20202

Our New Role: Financial Power

1 VirginiaTech, Women in Leadership and Philanthropy, 2016 2 “The State of Women-Owned Businesses Report,” American Express Open, March 2014 3 The Power of the Purse, Morgan Stanley

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Women who reached age 65 in 2012 are expected to live, on average, an additional 20.5 years to 85.5!1 Therefore, women need more money, yet: + In 2015, women working full-time in the U.S. were paid just 80% of what

men were paid2

+ Of 63 million wage and salaried women aged 21 to 64 working in the U.S., only 45% participate in a retirement plan3

+ Of those women who do contribute to retirement plans, they have 50% less in their retirement savings accounts than men4

• The 20% wage gap could be a contributing factor to women’s lower retirement plan account balances

Women In Retirement: The Facts

1 “Life expectancy in the USA hits a record high,” USA Today, Oct. 9, 2014 2 ”The Simple Truth About the Gender Pay Gap,” AAUW, 2016 3 U.S. Department of Labor, 2015 4 “Here’s Why Women Have Half the Retirement Savings of Men,” Fortune, November 3, 2015

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Typical retirement funding

+ Social Security • Women earning less than men

leads to a lower level of future Social Security benefits

• In 2014, the average annual Social Security income received by women 65+ was $13,150, compared to $17,106 for men1

Typical Retirement Funding

$17,106 $13,150

Wom

en

Men

1 “Social Security is Important to Women,” Social Security Administration, September 2016

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Pensions

+ Women spend fewer years in the workforce because they are more likely to stay home to care for young children. Consequently women are:

• Less likely to qualify for company-sponsored retirement plans, and/or

• Less likely to receive the full benefit of those plans1

+ Just 45% of all women participate in a retirement plan2

Typical retirement funding

1 nasi.org 2 U.S. Department of Labor, 2010

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+ In a recent EBRI study, 38% of IRAs were owned by men and 30% by women1

+ Average individual balance for men (including all IRA types) was $114,745 versus $66,529 for women1

+ The average rollover balance for men was $88,973 versus $56,671 for women1

What can we do?

Individual Savings

1 EBRI IRA Database, May 2013, remaining 32% was unknown

A retirement account should be considered a long-term investment. Retirement accounts generally have expenses and account fees, which may impact the

value of the account. Non-qualified withdrawals may be subject to taxes and penalties.

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The good news is many women:

+ Set goals

+ Do their homework

+ Admit if they don’t know

+ Ask for help

+ Manage risk – conservative vs. competitive

+ Focus on the long-term

Natural Born Investors?

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Six Strategies To Consider

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Get Organized

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Get Organized

+ A binder or file system to store important financial documents helps families manage their affairs after a catastrophe or serious illness, disability or death

+ Your advisor may be able to provide you a template to get started

+ We recommend keeping a back-up organizer in a safety deposit box or with a trusted relative

Financial Records Organizer: What is it?

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Get Organized

+ Insurance – health, long-term care, property and casualty, disability and life policies

+ Taxes – last three years of returns

+ Retirement – 401(k), pension and Social Security statements and correspondence

+ Banking – checking, savings and credit card statements; mortgages and outstanding loan documents

+ Investments – brokerage statements and 1099 mailings

+ Legal documents – wills, trusts, durable power of attorney and health care proxies

Financial Records Organizer: Sample Tabs

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Get Organized

+ Establish a benchmark of your expenses by reviewing credit card, debit card, bank statements as well as any other fixed costs

+ Divide expenses into needs, wants and wishes to help you prioritize expenses

+ Establish a savings benchmark; maybe you categorize that benchmark for various future expenses

• Travel and leisure

• Dining out

• Child’s education

• Paying for a wedding

Personal Budget: How to Begin?

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Get Organized

+ Do you have an emergency fund? According to CNBC, 66 million Americans have no emergency savings. We suggest you have six months to a year of expenses saved in an emergency fund

+ Health Insurance: make sure you have it and know the difference between the plans your company may offer

• HSA vs. FSA

+ Additional unexpected costs may include financial support for family members and long-term care costs for aging parents

Personal Budget: Expect the Unexpected

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Get Organized

+ When life events occur such as marriage, birth of a child, divorce or death, make sure you are making changes to who is listed as the beneficiary on various accounts

+ Oftentimes, these designations were completed many years ago and a change in your family circumstances may warrant a different designation

+ Any new beneficiary designation will automatically supersede previous designations

Update Your Beneficiaries

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Retirement Strategies: Know the Basics

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+ Established in 1978, the 401(k) plan is the most popular employer sponsored retirement plan in America

+ You can contribute up to $18,500 of your own dollars into your 401(k) in 2018

+ The maximum allowable employer/employee joint contribution limit for 2018 is $55,000

+ If you are over the age of 50 you can contribute an additional $6,000 as a catch-up contribution

401(k)s: The Basics

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+ An Individual Retirement Account (IRA) can be set up by anyone who has earned income (or whose spouse has earned income)

+ In 2018 you can contribute $5,500 into an IRA

+ If you are over the age of 50 you can contribute an additional $1,000 as a catch-up contribution

IRA: The Basics

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+ Both 401(k)s and IRAs are available in two forms: Traditional and Roth (please note that not everyone has access to Roth 401(k)s or IRAs)

+ With Roth 401(k)s you will pay taxes on the money you invest now and no taxes when you withdraw the money at retirement

• Contributions to a traditional 401(k) are tax-deductible, and are not tax-deductible with a Roth 401(k)

+ Traditional IRA contributions are tax-deductible on both the state and federal level for the year you make the contribution. Withdrawals taken in retirement are taxed as ordinary income

+ Roth IRAs do not provide a tax break at the time of contribution; however earnings and withdrawals are generally tax-free

Traditional Versus Roth

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+ Oftentimes employers will offer a matching contribution when it comes to the 401(k)

• For example, John makes $100,000 per year. John’s employer has a 5% match on 401(k) contributions. John decides to contribute 5% of his earnings so that his employer will match his contribution. Every year John puts $5,000 into his 401(k), and with the 5% match his employer also contributes $5,000. This means that $10,000 is contributed to John’s 401(k) every year rather than $5,000

+ This is FREE MONEY, an added benefit – don’t waste it!!!

The Power of “The Match”

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+ Separation from service

+ Attainment of age 59½

+ Disability

+ Death

Distribution Triggers

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+ Electing to leave your money in the plan or rolling the balance into an IRA will defer income taxes

+ Future distributions will be subject to ordinary income taxes and possibly a 10% premature distribution penalty if under age 59½

• Exception: If you separate from service at age 55 or later, distributions taken directly from your employer plan will avoid the 10% penalty

Taxes and Penalties

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+ Personalized investment advice

+ Wide-range of investment options

+ Fee-transparency

+ Avoid the 20% mandatory income tax withholding that applies to distributions from employer plans

+ Several systematic distribution options available

+ Complex beneficiary designations are generally allowed

IRA Rollover Advantages

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Paying Down Debt

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Paying Down Debt

+ The single most indebted birth cohort in the nation are 44 year olds1 + A 44 year old owes on average $142,077. This is mainly composed of

mortgage debt + Xers are in even worse shape financially than the baby boomers who

preceded them or the millennials who follow2

+ When it comes to millennials, the focus becomes student loan debt. 61% of adult millennials have attended college.3 This is more than any other generation of young adults, and it, in turn, has led to more debt

+ There is $1.3 trillion in student loan debt in the U.S. + With incomes rising more slowly over the past 20 years than at any time since

the end of WWII, the average earner needs to borrow if she wants to replicate the steadily increasing standards of living that her parents enjoyed4

The Facts

1 Rederal Reserve Bank of St. Louis economists William Emmons and Bryan Noeth, 2014 2 Bloomberg 3 White House, “15 Economic Facts About Millennials,” 2014 4 FORTUNE, “America’s Most Indebted Generation? Gen X,” Chris Mattews, Aug. 27, 2014

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Paying Down Debt

+ The three major credit reporting bureaus must give you one free copy of your credit report every year

+ Who they are:

• Experian

• TransUnion

• Equifax

+ According to the U.S. Government, “It’s important to check your credit report regularly to ensure that your personal information and financial accounts are being accurately reported and that no fraudulent accounts have been opened in your name.”

How to Obtain Your FICO Score

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Paying Down Debt

+ A recent survey from the National Foundation for Credit Counseling indicates that more people would be embarrassed to admit their credit scores (30%) than their weight (12%)1

+ Prioritize extra payments on maxed-out cards

+ Don’t miss a payment. A third of your credit score depends on whether you pay your creditors on time

+ Don’t neglect your other payments. Credit card activity is not the only activity that gets reported to credit bureaus

+ Bottom line is that having lots of money does not automatically equal a good credit score and vice versa. Instead, it is all about making the right choices with what you have

Three Ways to Improve Your FICO Score

1 Forbes, “11 ways to Raise Your Credit Score, Fast,” Curtis Arnold, May 2, 2014

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Mitigate Sequence Of Return Risk

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Mitigate Sequence of Return Risk

+ The risk that negative portfolio returns will coincide with the years just prior and shortly after retirement

+ Experiencing negative returns in these years can dramatically reduce the number of years a portfolio will generate income before being extinguished

Sequence of Return Risk – What is it?

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+ Starting Balance: $1,000,000

+ First year of retirement: 2000

+ Investment returns will mirror the performance of the S&P 500 Index from years 2000 through 2010

+ Annual Withdrawal: 5% of the beginning of the year balance

+ Inflation adjustment: 3% annually

Sequence of Return Risk – An Illustrative Example

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Mitigate Sequence of Return Risk Sequence of Return Risk – An Illustrative Example Year-End Balances

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+ Starting Balance: $1,000,000

+ First year of retirement: 2000

+ Investment returns will mirror the performance of the S&P 500 Index from years 2000 through 2010, only this time in reverse order

+ Annual Withdrawal: 5% of the beginning of the year balance

+ Inflation adjustment: 3% annually

Sequence of Return Risk – An Illustrative Example

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Mitigate Sequence of Return Risk Sequence of Return Risk - An Illustrative Example

Year-End Balances

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+ The second illustration will yield a 2010 year-end balance of approximately $200,000 more than the first illustration even though the average annual rate of return for both illustrations is 2.44%

+ The second illustration performs better than the first illustration because the early returns, despite 2008, were stronger than those in the first illustration

Sequence of Return Risk: Conclusion

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+ Request a Retirement Income Plan that incorporates several “what-if” scenarios

+ Consider consolidating various sources of income such as Social Security and pensions into a single account

+ Have a few years of anticipated income needs in cash when you retire in case your portfolio experiences negative returns early

+ Work with your advisor to construct a Spending Policy Statement

+ Inquire about guaranteed-income solutions as part of your overall Retirement Income Plan

Sequence of Return Risk: Strategies

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Preparing Heirs

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Preparing Heirs

+ Research has concluded that 70% of wealth transfers fail

• Failure is defined as the removal of assets, involuntarily, from the control of the beneficiary

+ Reasons for these failures include:

• Trust and communication breakdown: 60%

• Failure to prepare heirs: 25%

• All other causes, including taxes: 15%

Most Wealth Transfers Fail

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Preparing Heirs

+ Draft a written mission statement that defines how members view the purpose of the family’s wealth

+ Invite heirs to read wealth transfer documents

+ Improve the financial literacy of heirs

+ Introduce philanthropy to family members

+ Conduct regular family meetings to address new developments and solicit ideas

Five Strategies for Preparing Heirs

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Expect The Unexpected

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Expect the Unexpected

+ Women have a network of doctors on which to rely

+ Why not have a network of other professionals you can go to?

• Financial Advisor

• CPA

• Estate/Trust Attorney

Professional Support Network

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+ If you have loved ones who count on you to care for them, you may want to consider carrying life insurance

+ How much do you need? Many factors need to be taken into account here: • Can your partner earn money? • For how long do you need to provide money?

+ A general rule of thumb is to make sure that life insurance will subsidize 70% of the wage earner’s income for seven years should the wage earner die

+ There are various different rules of thumb when it comes to dual income earners with no kids, as well as if there is a non-working spouse or a large family

Life Insurance

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+ Between the ages of 25 and 65 people’s chances of becoming disabled are much higher than their chances of dying1

+ Most people rely on their company’s disability policy – but group policies generally only cover 60% of income in the case of disability1

+ Unless you have the financial security to cover being without income until you retire it is important that you have adequate disability coverage

Disability Insurance

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+ Nationally, nearly one in every six jury awards for personal negligence tallied $1M or more, and the average award was $2,959,0471

+ Reach out to your local insurance provider to inquire about your policies and potentially adding an umbrella policy

Excess Liability Coverage is Often Overlooked

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+ Will

+ Medical Power of Attorney

+ Digital Assets

+ Have your parents established a Power of Attorney?

Basic Estate Planning

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A Word About Life Transitions

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A Word About Life Transitions Widowhood

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A Word About Life Transitions Divorce

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Take Action

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Take Action

+ Collect all important financial documents

+ Write down your primary concerns and questions

+ Set an appointment with a trusted advisor

Next Steps

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Important information

The information contained herein is provided for informational purposes only and should not be construed as legal or tax advice. Your circumstances may change over time so it may be appropriate for you to evaluate tax strategy with the assistance of a professional tax advisor. Federal and state tax laws and regulations are complex and subject to change. Laws of a particular state or laws that may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of the information contained in this document. Janus Henderson does not have information related to and does not review or verify your financial or tax situation. Janus Henderson is not liable for your financial advisor’s or your use of, or any position taken in reliance on, such information.

A retirement account should be considered a long-term investment. Retirement accounts generally have expenses and account fees, which may impact the value of the account. Non-qualified withdrawals may be subject to taxes and penalties. For more detailed information about taxes, consult IRA Publication 590 or a tax attorney or accountant for advice.

In preparing this document, Janus Henderson has relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources.

For more information contact your financial advisor

151 Detroit Street, Denver, CO 80206 I 800.668.0434 I www.janushenderson.com

Reference

C-0318-15948 10-30-18 166-15-48134 03-18

women and wealth: a practical approach to financial ...... · women in retirement: the facts . 1...

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