Transcript Women and Wealth: Creating a Strategy that Works for You

Women and Wealth:
Creating a Strategy
That Works for You
General Financial Strategies for Women
Presented by:
Natalie Lariccia and Katie Solvesky
Women control substantial wealth
Some economic factors about
women:
 Women comprise 43% of top wealth
holders1
 Women account for 37% of North
American high-net-worth segment
(more than $1 million in investable
assets)2
1
2
Lisa Belkin, “The Power of the Purse,” The New York Times, August 2009.
World Wealth Report 2011, Merrill Lynch Global Wealth Management and Capgemini, www.in.capgemini.com.
Women comprise almost
half the work force
Some statistics about women
in the workplace:
 Women comprise 46.7% of the total U.S.
labor force1
 They account for 51.5% of persons employed
in management/professional positions2
 More than 8 million U.S. businesses are majority
women-owned, with an economic impact of $3 trillion
annually, translating into more than 23 million jobs3
 Women receive more bachelor and advanced college
degrees than men4
 22% of married women earn more than their husbands5
Women’s Employment During the Recovery, U.S. Department of Labor, 2011, www.dol.gov.
Bureau of Labor Statistics, “Employed persons by detailed occupation, sex, race, and Hispanic or Latino ethnicity,” 2010.
3 The Economic Impact of Women-Owned Businesses in the United States, Center for Women’s Business Research, 2009.
4 U.S. Census Bureau, Current Population Survey, 2010 Annual Social and Economic Supplement, April 2011.
5 2010 Pew Research Center analysis of 1970 Decennial Census and 2007 American Community Survey.
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2
Women influence most household
financial decisions
Women are actively involved in household finances:
 95% of women are financial decision makers and 84% of married women are either
solely or jointly responsible for household financial decisions1
 Investment attitudes and behavior in a shared decision-making household tend to
resemble those of a female decision maker2
 Women more readily recognize their Advisors’ worth and reward them with loyalty3
1 Prudential
Research Study, “Financial Experience & Behaviors Among Women, 2010–2011.
MSAO Strategic Insights and Intelligence team analysis of Spectrem Group’s 2008 Millionaire Investor survey data, August 25, 2008.
3 MSAO Strategic Insights and Intelligence team analysis of Spectrem Group’s 2011 UHNW Investor and 2011 Millionaire Investor
survey data, February 8, 2012.
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Unique challenges
Women face unique challenges that can impact
their ability to realize longer-term goals:
 Increased life expectancy/greater retirement needs1
 Longer exposure to inflation/increased
health care costs
 Long-term impact of time spent out of
work force2
 Earning 81.2% as much as men as a
full-time worker3
1 U.S.
80.5
Women
75.5
Men
Life Expectancy in Years1
Census Bureau, Life Expectancy by Sex, Age, and Race: 2008 (most recent statistics).
The MetLife Study of Caregiving Costs to Working Caregivers: Double Jeopardy for Baby Boomers Caring for Their Parents, 2011.
3 Bureau of Labor Statistics, Current Population Survey, “Median weekly earnings of full-time wage and salary workers by detailed
occupation and sex, 2010,” April 2011.
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Inflation
A necessary planning factor
19601
2010
20502
$.49
$3.67
$9.85
$.57
$1.37
$3.68
$.31
$2.73
$7.33
$.04
$.44
$1.18
1
2
http://www.1960sflashback.com/1960/Economy.asp
Assumed 2.5% Inflation Rate from 2010 through 2050
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Chief financial concerns
The top financial priorities identified
by women are:1
 Funding retirement
 Financial situation of children or
grandchildren
 Health, spouse’s health and becoming
a burden to family
 Adequate help to meet financial goals
1
Wealthy Women Investors, Spectrem Group, 2011.
Budgeting
Develop a Budget and Stick to It
Create a budget to help plan for the long term
 Become more aware of day-to-day cash
flow and expenses
 Pay down debt, especially high-interest
debt
 Consider health care and insurance
options
 Set up an emergency fund
High Interest Debt
can be crippling
Paying the minimum balance on a $1,000 balance
credit card with an 18% APR will take 153 months to
pay off and you would have paid $1,115.41 in interest!
Hypothetical example for illustrative purposes only.
Assumed minimum payment is calculated by using 2.5% of the balance
Budgeting
Buy or Rent?
Pros
Renting
Buying
Cons
 Flexibility (can relocate easily)
 Can invest money elsewhere
(stock market)
 No upkeep fees
(drippy faucets, broken
dishwashers, etc.)
 No Equity
 Annual rent increase
could outpace inflation
 Tax-break: deduct mortgage
interest and property taxes
 Potential tax-free capital gain
 Emotional satisfaction
 Property tax and upkeep
 Mortgage costs
 Less flexibility should you
want to move; in very bad
housing markets, you
could lose principal
http://www.smartmoney.com/personal-finance/real-estate/to-rent-or-to-buy-9687/
Budgeting
Financing a Home
Fixed Rate Mortgage
The interest rate of
this loan is locked in
at origination and remains
the same throughout the
term of the loan
Adjustable Rate
Mortgage
Government
Guaranteed Loans
These loans have an
interest rate that is tied
to an index, changing with
prevailing market rates
The FHA loan is a fixed
rate mortgage that is
designed especially for the
first time home buyer of
moderate or low income.
A VA loan, is designed for
men and women with a
history of active military
service or he/she is the
surviving spouse of an
active service member.
Investing
Taking control
Investors can take greater control
of their financial situation.
 Learn about investing
 Identify your financial goals
— Financial security of
children/grandchildren
— Care of aging parents
— Your own long-term care
 Work with a Financial Advisor
 Monitor your portfolio
 Don’t procrastinate
A strategy defined by your goals
Your overall investment
strategy depends on:
 Your goals, timetable and
tolerance for risk
 A balance of stocks, bonds
and cash
 Monitoring and rebalancing
your portfolio
? ?
?
CASH
STOCKS
BONDS
Determining an appropriate
asset allocation
Merrill Lynch Asset Allocation Models
Conservative
Moderately
Conservative
Moderate
Moderately
Aggressive
5%
5%
Aggressive
5%
10%
25%
15%
20%
40%
55%
35%
25%
60%
50%
Bonds
Stocks
70%
80%
Cash
Source: Bank of America Merrill Lynch Research Investment Committee (RIC) Report, January 2011. Models are for
illustrative purposes only. Merrill Lynch has changed the allocations for each model in the past and may change the
allocations in the future, depending upon research and investment strategy recommendations.
Education Planning
How the average family pays for college
Average percentage of total cost of attendance paid for each
source:
Source: Ipsos Public Affairs/Sallie Mae’s How America Pays for College 2012 study
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Consider tax-efficient college planning options
Understand your
education
funding options
Tax-advantaged college planning options
 Section 529 college savings plans
 Coverdell Education Savings Accounts
 Uniform Gift/Transfer to Minors Act
(UGMA/UTMA) custodial accounts
Please remember there's always the potential of losing money when you invest in securities.
Before you invest in a Section 529 plan, request the plan’s official statement from your Merrill
Lynch Financial Advisor and read it carefully. The official statement contains more complete
information, including investment objectives, charges, expenses and risks of investing in the
plan, which you should carefully consider before investing. You should also consider whether
your home state or your designated beneficiary’s home state offers any state tax or other
benefits that are available only for investments in such state’s 529 plan. Section 529 plans are
not guaranteed by any state or federal agency.
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Retirement
Not-so-good News: Social Security Is Threatened
by an Aging Population
Ratio of Workers to Beneficiaries
1950
2010
2025
16.5 to 1
3.3 to 1
2.3 to 1
"The 2009 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds," May 12, 2009.
Not Your Parent’s Retirement Plan
Number of Defined Benefit Plans
Number of Defined Contribution Plans
180,000
800,000
160,000
700,000
140,000
600,000
120,000
500,000
100,000
400,000
80,000
300,000
60,000
40,000
200,000
20,000
100,000
0
0
1974
1986
1998
Private Pension Plans, Participation, and Assets: Update
(Data from tabulations of the U.S. Department of Labor's Form 5500)
1974
1986
1998
There Is Hope “The Rule of 72”
"Compound interest is the eighth wonder
of the world. He who understands it, earns it ... he
who doesn't ... pays it."
- Attributed to Albert Einstein
 The “Rule of 72” is a simple way to determine how long
an investment could take to double, given a fixed annual
rate of interest.
 You divide 72 by the annual rate of return, to get an
estimate of how many years it could take for the initial
investment to double.
Example
$100 invested at 10% would take approximately 7.2 years
to turn into $200.
Hypothetical example for illustrative purposes only. Results are not meant to represent the past or future performance of any specific investment vehicle. Actual rates of return
cannot be predicted and will fluctuate. Your results may be more or less.
Start Saving As Soon As You Can
The sooner you start, the more money you could
potentially have in retirement
$800,000
$739,567
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$5,000
At Retirement
$-
Today
(35 Years later)
This hypothetical illustration assumes an annual $5000 IRA contribution made at the beginning of each year for 35 years, a 7% annual rate of return, and no taxes on any earnings
within the IRA. Hypothetical results are for illustrative purposes only and are not meant to represent the past or future performance of any specific investment vehicle. Investment
return and principal value will fluctuate and when redeemed the investments may be worth more or less than their original cost.
Save for Retirement Every Year
Even one year can potentially make a difference in your nest egg
This hypothetical illustration assumes annual $5000 IRA contribution made at the beginning of each year and beginning one year apart for various ages, a 7% annual rate of return,
and no taxes on any earnings within the IRA until the age of 71. Hypothetical results are for illustrative purposes only and are not meant to represent the past or future performance of
any specific investment vehicle. Investment return and principal value will fluctuate and when redeemed the investments may be worth more or less than their original cost.
Meet Your Company Match In 401(k) Plans
 Many companies offer to match a
percentage of employees’
401(k) contributions
 Investors should consider
contributing at least as much as
the company is willing to match
 Don’t leave “free money” on the
table by failing to contribute to
your company’s 401(k)
¹ http://www.bls.gov/news.release/pdf/nlsoy.pdf, September 2010
The average person born in the
latter years of the baby boom held
11 jobs from age 18 to age 441
Reasons to Invest Early
Impacts on Your Paycheck
A pre-tax contribution to your retirement account reduces your take home
pay less than the amount of your contribution.
Example
 Mary is 35 and her annual salary is $50,000. She wants
to contribute 5% of her salary to her 401(k) to take advantage of
her company’s matching contributions
and retire in 30 years.
 Results
- Mary’s monthly take-home pay would be reduced by: $156
- Her annual income tax bill would decrease by: $625
- With an employer match, at age 65 her account would
grow to: $395,291
This hypothetical illustration assumes a 5% contribution rate at the beginning of each year, a 6% annual rate of return, and a 25% federal tax bracket (state and local taxes are not
included). It also assumes a company match of 100% for every dollar contributed up to 5% of eligible compensation. Hypothetical results are for illustrative purposes only and are not
meant to represent the past or future performance of any specific investment vehicle. Investment return and principal value will fluctuate and when redeemed the investments may be worth
more or less than their original cost. Taxes are due upon withdrawal. If you take a withdrawal prior to age 59½, you may also be subject to a 10% additional federal tax.
Risk in retirement
Types of risk to consider:





Market and sequence of returns
Inflation
Longevity/life expectancy
Health care
Asset allocation
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Framework for building
a retirement strategy
Different portfolios are designed
to address separate needs:
 A short-term portfolio is designed
to supplement ongoing retirement
income sources
 An intermediate-term portfolio is
designed to generate returns over a
longer period of time, helping you
keep pace with inflation and making
it less likely you will outlive assets
 A long-term portfolio is designed to
fund wealth structuring goals
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Managing your retirement assets
Remember to:
 Review your portfolio annually
or as needed
 Consider whether rebalancing your
portfolio is necessary
 Continue to monitor your portfolio
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Estate planning strategies
Getting in the know
Don’t rely on others to handle
the details.
 Review and understand your
estate plan
 Ask your own personal legal
advisor about asset titling and
beneficiary designations
 Find out:
— Are you a personal representative
(executor) and/or a trustee?
— Are you familiar with your
parents’ estate plan?
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Reasons to have an estate plan
Your entire estate is taxable.
 IRA and 401(k) assets
 Life insurance proceeds
 Real property, bank accounts
Your beneficiaries need liquidity
to pay:
 Estate tax
 Administrative expenses
 Outstanding debt
Neither Merrill Lynch nor its Financial Advisors provide tax, accounting or legal advice. Clients should review any planned financial transactions
or arrangements that may have tax, accounting or legal implications with their personal professional advisors.
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Distributing your assets
per your wishes
Will
 Provides for the distribution
of assets after your death
 Applies to assets owned in your
name not otherwise the subject
of beneficiary designations
 Does not address lifetime
planning, e.g., incapacity
 Is subject to probate proceedings
 Requires court-appointed
personal representative
Living Trust
 Provides benefits while you are
still alive, including during
incapacitation, and after death
 Allows limited probate
proceedings for pour-over will
 Applies to all assets titled
in the name of the trust
 Addresses lifetime management
of assets
 Requires grantor-appointed
trustee
Be prepared for your discussion
Before meeting with your own
personal legal advisor:
 Prepare a family tree
 Make a list of everything you own
 Think about whom you want to
designate as beneficiaries, personal
representative and /or trustee of
your plan
 Consider what you want to leave
to whom and in what form
 Indicate which charitable organizations
you wish to support
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Putting it all together
Best Practices to Help You Plan for your Future
Save Every Year
Start Saving As
Soon As You Can
Pay Down Debt
Meet Your Company’s
401(k) Match
Monitor and
Adjust Your Portfolio
Create A Budget
What about your life?
Consider this:
 Are you living for today, maintaining a long-term horizon, or both?
 Is your financial strategy a balance between lifetime financial needs and the
legacy you would like to leave?
 Are you familiar with your investment portfolio? Do you feel you have the
right mix of stocks, bonds and cash to help meet your investment needs?
 Have you determined your tolerance—both financial and emotional—for
investment risk?
 Have you worked to develop strategies to help meet your philanthropic goals?
 Do you have a will and/or trusts? If so, are they current?
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