From CFP Board's Consumer Advocate, Eleanor Blayney, CFP^®

I met with a couple about to retire. We talked about all the things they could anticipate in the next few years: travel, taking some classes at the local community college, becoming more tech-savvy to keep up with the grandkids. A shadow, however, passed over the wife’s face, as she mentioned something she was NOT looking forward to in retirement. “I’m going to miss that green envelope,” she said. “Knowing I won’t be seeing it in our mailbox makes me really nervous.”

She was referring to her husband’s monthly pay receipt. For decades, his paycheck had been deposited as regularly as clockwork in their checking account, and was the anchor and compass of their financial management. Without it, they felt like they were on their own trying to figure out how much they could withdraw from their retirement reserves – not to mention how to plan for taxes, deciding which accounts to draw from first, and how to invest.

Today, many Americans feel the same: entirely on their own when it comes to retirement income. Yes, there is Social Security, but these benefits are generally not enough to cover more than the most basic living needs. For some, a government or corporate pension may provide additional, regular income. The majority of Americans, however, will have to depend on what they themselves have set aside in their retirement plans.

In short, after a lifetime of being paid, retirees must shift gears and start paying themselves. And like my retiree couple, they find the prospect pretty daunting.

To manage their anxiety, retirees must learn to separate fact from fiction when it comes to generating the income needed for their sunset years. Let’s first get the fallacies out of the way:

• You should rely primarily on safe, income-producing investments to create income in retirement.
  
  There are two problems with this assumption. First, it’s too simplistic to think that investments that pay interest or dividends are safe, whereas growth stocks are not. Retirees often confuse regularity with safety. While it is true that bonds, for example, provide predictable income – which to most retirees is the Holy Grail of retirement investing – this does not mean that this income is perfectly safe. Bond issuers do sometimes default, and companies that pay dividends do occasionally cut their payouts to shareholders. However, a far greater risk, associated with bonds in particular, is that inflation will reduce the purchasing power of those regular payments.
  
  Second, in today’s low interest rate economy, it can be difficult to find yields on fixed income investments sufficient to maintain a retiree’s lifestyle. Unfortunately, this drives many retirees in search of higher yields, which carry unacceptable risk.
  
  For most retirees, a healthy allocation to investments that will grow over time, rather than those that promise regular income, is warranted. Today’s growth is needed for higher payouts in the future.


• There is a one, magic withdrawal rate that will ensure you will never run out of money.
  
  It’s true that there has been considerable research done on “safe withdrawal rates” – defined as the highest yearly payout from an investment portfolio that will not deplete the portfolio over a given period. So much depends on the parameters used to identify this rate. In some cases, the rate is defined by using historical portfolio returns. In others, variability in investment returns is simulated from current risk data. Generally speaking, however, there is a consensus that a 4 percent annual withdrawal rate is a reasonable payout over the life expectancy of most retirees.
  
  What retirees need to understand, however, is that this rate is not, and should not be, inflexible. There may be years that a higher rate is warranted or necessary – during times when the investment portfolio is doing well, or when there are large expenses, perhaps for medical costs.
  
  This is where an annual consultation with a CFP^® professional works better than a hard-and-fast rule. The advisor can reevaluate each year the need for greater or lesser withdrawals from the portfolio, while also considering the longevity of the portfolio, in a way that fits the unique circumstances of a retiree’s life.


• It’s a bad idea to spend capital from the retirement portfolio.
  
  This advice was handed down to baby boomers by their Depression-era parents, and is, in fact, related to the fallacy that retirees must depend on income-producing investments only.
  
  The advice is no longer relevant to today’s retirees, primarily because of tax-law changes and the accounts used to save for retirement. Traditional IRAs, 401(k)s, 403(b)s, and self-employed plans are structured, under the tax laws, to be depleted over our lifetimes. In fact, retirees are penalized if they fail to take principal from these accounts at a certain age. Many retirees find the prospect of spending down these accounts very upsetting, when, in fact, doing so under the guidance of a qualified CFP^® professional can result in a far more comfortable, secure retirement.

Now for the facts. Here’s what really matters to a retiree drawing out income from his or her retirement savings:

• Taxes matter.
  
  Where taxes really matter is in determining acceptable withdrawal rates. Suppose, for example, a retiree decides he needs approximately 4 percent from his retirement portfolio to cover his annual living expenses. As discussed above, a 4 percent payout is a reasonable (but not certain) rate to ensure portfolio longevity. When, however, this payout is made from a tax-deferred retirement account, the retiree will need to withdraw approximately 1 percent more from the portfolio to cover the tax liability on these withdrawals, making his payout increase to 5 percent. The sustainability of the portfolio over his lifetime may drop considerably at this rate.
  
  What many individuals fail to appreciate in saving for retirement is the importance of using both taxable and tax-deferred accounts. Having the flexibility to choose between the two types of accounts when it’s time to make a withdrawal, and thereby controlling the amount of taxes owed in any given year, can be critical to sustaining the retirement portfolio.


• Timing matters.
  
  When a retiree starts taking income from his or her retirement accounts can make a huge difference. As individuals who retired in 2007 or 2008 are all too aware, a bad investment market combined with portfolio withdrawals may diminish the sustainability of those withdrawals by several years. In cases of bear markets, those able to delay retirement, and continue earning income rather than consuming assets, are in a much better position to avoid running out of money during their lifetimes.


• Spending matters more than investments.
  
  Many retirees believe if they could just get the portfolio allocation and security selection “right,” they will have enough for their retirement.
  It may surprise them, however, to realize that in the studies done on sustainable withdrawal rates, the allocation of the portfolio providing the withdrawals was not very important to the results. In other words, the amount of fixed income in the portfolio could vary from approximately 35 to 65 percent without significantly changing sustainable withdrawal rates.
  
  This suggests retirees should focus primarily on expense management in retirement as the most effective way to ensure that their resources will last.

Taxes, timing, and spending: what matters most in creating income in retirement are, in fact, pretty simple principles. What’s not so simple is coordinating the three. Here’s where finding a CFP^® professional can also make a big difference: he or she is trained to take all these factors into account, in designing an individual retirement income strategy that makes sense for you. You can learn more, and find a CFP^® professional, at www.CFP.net and www.LetsMakeAPlan.org.

From CFP Board Ambassador Dan Keady, CFP^®

Recently, I had my “six month” dental check-up. As I sat in the dentist’s chair, I thought about how dental appointments actually relate to our workplace savings plans, such as a 401(k) or 403(b) plans. We all know how important it is to have our teeth cleaned and checked for cavities, and our gums probed for softness. But what about those savings plans?

Just like a dental appointment, many of us are busy and put off our 401(k) check-up. Unfortunately, I was several months late for my “every six months” dental appointment. When was the last time you reviewed your 401(k) statements? Has it been six months, or even longer?

The reason you go to the dentist and review your 401(k) is to prevent little issues from becoming big, painful and expensive problems. Delaying going to the dentist won’t make a problem go away, and ignoring your 401(k) won’t help you reach your savings and retirement goals.

Perhaps you are anxious about potential “pain” in case a problem is identified and you require “treatment.” If you are like me, you always feel a little nervous going to the dentist. Many people tell me that looking at their 401(k) statement makes them similarly anxious, particularly after experiencing the pain of “statement shock” and low returns during the Great Recession.

Here are some questions to ask as you review your 401(k) or other workplace savings plans. These will help to identify if you have a financial cavity.

• Are you forfeiting the extra “return” on your employer’s match by not contributing enough to get the maximum match?


• Do you have a defined investment strategy based on your future goals, your risk tolerance, and your financial situation?

And here are some additional check-up questions to ask about the holdings and trading activity in your account that could signal potential problems:

• Have I considered whether my contributions and account value are on track to provide the income I will need in retirement?


• Do I regularly review the allocation choices for my contributions to the plan, or am I still using the percentages I chose when I was first employed?


• Do I get overwhelmed with all the fund choices, and just put all of my contribution into a low-yielding cash account?


• Do I know what fees are being charged for my plan? Have I compared the expenses of my investment choices to the other options offered?
• Am I chasing returns by investing only in the “hot” funds that had the highest returns last year, and thereby failing to remain diversified?


• Do I always end up buying stock funds at their “highs” out of optimism and selling them at low prices because panic sets in? Is emotion driving my actions?


• Do I depend on a co-worker to tell me what to invest in, even though our situations have nothing in common?

When I began in financial services over thirty years ago, many retirees had, in addition to Social Security and a nest egg, a defined benefit plan. Today most of us do not have a defined benefit pension plan that provides a regular check over our lifetimes. This means that contributing to and managing your 401(k) or IRAs is critical to reaching our goals.

So do not ignore your 401(k). Be aware, however, that managing your 401(k)s, IRAs, and Roth IRAs can be difficult. In addition, when managing your retirement plans you should take into account current and future tax rates, as well as other goals such as saving for college or purchasing adequate insurance coverage. You may want to consider the services of a Certified Financial Planner TM professional to construct an overall plan for reaching these goals, and to help you implement and monitor your plan. A CFP^® professional is uniquely qualified by ethical standards, examinations, education, and experience to provide advice through far more objective eyes than your own. Just like going to the dentist, reviewing your savings plans, including your 401(k), with a CFP^® professional will help maintain the long-term health of your savings.

From CFP Board Ambassador Lynn Ballou, CFP^®

The great thing about being a “seasoned” CERTIFIED FINANCIAL PLANNER™ professional is all the things that I've learned from clients over the years that I can share with you. Inherent in the definition of civilization is the hope that we can learn from the mistakes of others and move forward better. Being able to aide in that journey is a joy.

When preparing for retirement you must set steps in motion now that will allow you to successfully ease into your financially independent years with as few bumps as possible. In your quest to put your plan in place, I hope you will find the following thought-provoking --- these are issues that I've seen with folks who came to me too late in their lives and had not planned for appropriately in their earlier years. These issues often completely derailed or at the very least significantly and negatively impacted their ability to have a financially stable retirement. In no particular order, here are five for you to consider:

• Home Improvements: So the great news is that we are living longer and hopefully healthier lives. That said, how many of us think about the cost to maintain our homes when we aren't working anymore? Basically the tending to and nurturing of our home is a constant battle between us and Mother Nature --- and it can’t be denied or ignored. Just because we are retired doesn't mean this ends. Even if you completely remodel and fix up everything just before you retire, that doesn't mean you’ll never need to think about these expenses again during your life.
  
  In the Bay Area where I live, I compare it to painting the Golden Gate Bridge. Hardworking maintenance teams brave all the elements to take care of that bridge --- incessantly! They start at one end and paint it for many years until they reach the other side. And then, guess what – they go back and start the process all over again. It’s never done! So for us the lesson is that it’s important to think realistically about the typical costs of taking care of our homes over all of our retirement years and set up a way to handle those costs because it never ends. Whether you proactively set aside a monthly amount into a separate account for future costs or have a Home Equity Line of Credit in place for the big items such as a new roof, have a plan in place to fund the costs.


• New Cars: Even though most of us drive much less when we are retired, and couples sometimes “skinny down” to one car, our cars still need to be maintained and ultimately replaced, since they won’t last forever. Solution? Build a car loan into your retirement budget as a monthly expense. If you can afford to pay all cash because of the depth of your resources, that’s fine, but if not, this is a great approach to help protect your retirement plan. You might want to assume, for example, that you’ll buy a new car every eight years for a cost of say $40,000. That means you include in your monthly retirement budget $417/month for a new car purchase. Planning ahead will allow you to enjoy yourself even more and not worry that you have to keep driving an old, unsafe, unreliable car!


• Medical Costs: Many retirees have been surprised --- maybe “shocked” is a better term for it --- at what their retirement medical costs are. And as the baby boomers retire and stretch Medicare to a possible breaking point, it’s unwise to assume that these costs will go down anytime soon when planning. Many planners tell their clients to be prepared to pay the full amount for their medical insurance, co-pays, and uncovered expenses. They can be pleasantly surprised if they don’t need every penny!
  
  To figure out what that cost might be in today’s dollars, check with your insurance agent and find out what a policy (including dental and vision!) would cost today if you had to pay for it yourself. Add a few hundred dollars per month for co-pays, alternative forms of medical care that might not be fully covered such as therapy costs in excess of plan limits, and high quality reading glasses in excess of plan coverages. As we age dental costs can increase surprisingly and the limits in our policies preclude us from receiving full coverage. Being prepared will give you peace of mind.


• Grandkids: Whether it’s just hanging out with them, taking them on vacations or setting up college education funds, having grandkids can be a joy, but often an unplanned one. It’s hard when you are still raising your own kids to picture them as ever being parents themselves! But it’s pretty likely they will be, so plan on spoiling these little treasures and having the resources to do so! As we watch our kids struggle to find work, fund the costs of raising their children, afford homes, and try to set aside money for THEIR retirement, we realize more and more the significant value of the gift that we as grandparents can provide in the way of even the most basic financial support. If it’s an important part of your core values, plan accordingly. Many people have told me over the years that their ability to sprinkle some financial help on their kids and grandkids as they raise families is one their greatest joys in life. It’s certainly wonderful to leave an estate to help those next generations, but it’s priceless to be able to enjoy watching them benefit while you are alive.


• Long-Term Care: I hope you don’t need this type of care during your lifetime, but you probably will at some point. So let’s fast forward to those years in our planning journey: Will you want to stay in your home and receive care as you need it? Do you have the resources to do so? Will you be downsizing your life into a smaller living space, perhaps in a retirement community? Will they have levels of care that include assisted living and full care? Should you be thinking of buying Long-Term Care Insurance? Obviously this is a uniquely complex area of planning.
  
  Increasingly in my own practice we have these in-depth and sometimes tough conversations with clients. But the theme remains the same: mostly we want to have the flexibility through our resources to receive the best care we can if and when it’s needed. And mostly we hope to be able to live in our own homes as long as possible. So, based on a thoughtful and complete review of your current and future means, you and your planning team should determine if you have a deep enough asset base to handle your own care needs should they arise, or whether it is time to look into purchasing a long-term care policy. Long-term care insurance is expensive and a leap of faith: you are buying coverage for something you may never experience and it is tough to understand all the choices. But be patient. It’s worth the time and effort to really work on this part of your plan, and potentially saving you and your family from worry in the future is well worth the time and care you invest in planning carefully now.

In closing, I applaud you on your journey to carefully plan your future. Doing the tough work is never glamorous, but the pay-off, and what’s at stake, is enormous. Do your own due diligence, be thoughtful, lean on your CFP^® professional and surround yourself with a valued team of trusted advisors. I know that this is a phrase you’ve heard many times before, but it’s nonetheless appropriate even today: the journey of a thousand miles begins with one step. Be proud that you are taking that step and many others. You will look back in the future and thank yourself for this gift.

Financial Planning for Your Retirement

If These Factors Are Present, You May Want to Delay Your Retirement

Some people know exactly when to retire, but thoughts of when to call it quits make other people nervous and the decision is not easy. A number of personal and financial factors must be considered, and can make determining the right time to retire mind-numbingly complex. Retiring simply because you have surpassed 59 1/2, the age people can dip into their retirement accounts with no penalty, or have turned 62, and are eligible for Social Security benefits, can be a costly mistake. People are living longer, and it might make sense for them to maximize any special talent or gift in their field as long as possible and delay retirement, says Certified Financial Planner Board of Standards Consumer Advocate Eleanor Blayney, CFP^®. "The numbers are pretty compelling for delaying retirement account withdrawals as well as Social Security," Blayney says. Baby Boomers who are counting on the stock market to make up the difference in a nest egg that is not large enough could be making a mistake if they retire. "People who are most successful in retirement are not necessarily the most successful investors, but instead are those who live within their means, maintain low withdrawal rates, and don't rely on the stock market to maintain their lifestyle," adds Blayney. Experts also say it might not be the right time to retire if you plan to work part time, your spouse does not want you to retire, you do not have a place to go or something to do, you have not planned for health care costs, or you have financial obligations.

Chances Are, You or a Loved One Will Need Long-term Care at Some Point

Up to 70 percent of Americans now age 65 will need long-term care at some point, says Ty Pendergrass, CFP^® and the issue is one that should be discussed with a CERTIFIED FINANCIAL PLANNER™ professional. Each individual should examine their family’s medical history to determine their likelihood of needing long-term care – if there is a history of Alzheimer's, for example, it is a good idea to plan for the possibility. Long-term care is not just for medical care, though, as the main care issues include daily living tasks like bathing, dressing, eating, and using the bathroom. Medicare covers short-term nursing home stays that are medically necessary, and Medicaid covers care for those with low incomes. Long-term care insurance is increasingly common for those looking to offset future costs of care, but the premiums can be expensive and are based on age, health, elimination period death benefit, maximum benefit period, and inflation protection. Further, half of the top 20 providers of individual long-term care insurance are not accepting new business, so it is important to find one that does a lot of business in one’s home state and has a high rating from A.M. Best Co., Standard & Poor's, or Moody's Investor Services.

When Planning for Retirement Make Reasonable Assumptions and Modify Plans if Necessary

Doug Wheat, CFP^® says when it comes to retirement planning, it is important to make reasonable assumptions and compare them with historical data. Moreover, people need to reexamine their assumptions and modify their plans if needed. To determine the income a person will require to live comfortably in retirement, people must first see how much is being spent today on fixed and discretionary expenses, Wheat says. They must also identify expenses that will continue into retirement, be added, or stop. Property taxes will continue, for example, but mortgage payments may disappear. There are also large periodic costs to consider, such as car repairs and purchases. With regard to long-term care insurance, Wheat says it is crucial to check the credit rating of an insurance company prior to purchasing a policy. Policyholders can safely move from state to state with their existing long-term care insurance, he says.

The 'Four Percent Rule' Is a Good Guide to Use When Determining Withdrawals from Your Retirement Portfolio

The "Four Percent Rule" is one of the most famous rules of thumb in financial planning, but it may be more valuable as a guide rather than a steadfast rule, writes Roger Wohlner, CFP^®. In essence, the rule says a retiree can safely take out no more than four percent of the combined value of all of their financial assets each year with the expectation that the money will last 30 years or more. For example, a 65-year-old with a retirement portfolio of $1 million could safely withdraw up to $40,000 a year and would not run out of money until he or she reaches 95. But what if a retiree needs more than four percent annually, lives to be 100, has a much bigger surplus due to spectacular returns in the first few years of retirement, or sees the stock market drop 45 percent? The real value of the rule is that it offers a good place to start when determining how much someone will spend in retirement. The right withdrawal rate year after year needs to take into account variables such as health, family history of longevity, variable rates of return, risk tolerance, and goals. The creation of a comprehensive financial plan, and updating it at least once a year, is the right way to approach retirement planning.

Hiring a CERTIFIED FINANCIAL PLANNER™ Professional

CERTIFIED FINANCIAL PLANNER™ Professionals Offer Free Advice in October

Four nonprofit groups – the Certified Financial Planner Board of Standards, the Financial Planning Association, the Foundation for Financial Planning, and the United States Conference of Mayors – will sponsor free financial planning events in two dozen cities throughout the month of October as part of the third annual "Financial Planning Days" initiative. Each Financial Planning Day event will include one-on-one meetings with volunteer CERTIFIED FINANCIAL PLANNER™ professionals and planners affiliated with the Financial Planning Association. Sessions are no-strings-attached – participating financial planners will not distribute business cards and will not ask attendees to buy financial products or services. CERTIFIED FINANCIAL PLANNER™ professionals and other planners will answer questions about budgeting, managing credit, getting out of debt, income taxes, homeownership, handling mortgage foreclosures, paying for college, estate planning, insurance, and various other topics. Many of the locations will also have workshops on financial planning topics like taxes and retirement.

The CERTIFIED FINANCIAL PLANNER™ Professional Designation Is the Cream of the Crop

Investors and retirees could benefit from an effort to streamline the alphabet soup of financial planner designations. Some estimates put the industry-wide total at about 300 designations, and experts say many consumers are unable to tell the difference between certifications that reflect serious training and lightweight credentials. Some industry leaders have begun to push for adopting the CERTIFIED FINANCIAL PLANNER™ professional designation as the sole credential for the industry. "The idea of reducing consumer confusion is paramount," says financial expert Paul Auslander, CFP^®. The CERTIFIED FINANCIAL PLANNER™ professional designation requires holders to complete 15 college-level credit hours as well as take a rigorous, 10-hour exam administered by the Certified Financial Planner Board of Standards.

A CERTIFIED FINANCIAL PLANNER™ Professional Can Help You Develop a Sound Financial Plan

People want to know if they will have enough money for a comfortable retirement, says Dan Gensler, CFP^®. Gensler notes that CERTIFIED FINANCIAL PLANNER™ professionals can perform a detailed analysis for clients and can help investors better determine how much money they will need for retirement, understand Social Security, and assess what retirement will mean in 10 or 20 years. "When you incorporate current assets, future contributions, detailed listing of expenses, taxes, inflation, and estimated returns, the program will illustrate what the client's future financial health could look like," he adds. Stuart Ritter, CFP^® says financial planners can help investors determine what they need to do, if they are doing enough of it, and if they need to save more or work longer. Answering those questions "gives people confidence that they're where they want to be or what they need to do to get there," he says. People who are concerned about their financial security will feel better once they have a plan in place, according to Ritter.

Financial Planning for Your Life Now

The Federal Health Care Act May Offer You Some Advantages

The new health care act offers several benefits that several CERTIFIED FINANCIAL PLANNER™ professionals are happy to see on behalf of their clients, according to CFP Board Ambassador Lynn Ballou, CFP^®. Under the Patient Protection and Affordable Care Act, plans no longer have lifetime maximum limitations, which means there is no need to worry that an expensive course of treatment will completely exhaust a client's entire medical coverage for life. The pre-existing conditions benefit, which does not go into effect until 2014, is considered by many CFP^® professionals to be an excellent benefit, particularly since many clients or their loved ones are under-insured and may pay very high rates for their coverage now due to prior illnesses and medical challenges, even if they are no longer a factor in the person's health. The health care act also offers preventative care without deductibles and co-pays, coverage to age 26 under a parent's plan, and better summaries of coverage. Many health plans are coming up for renewal in the fall, and these benefits could help set the stage for a thoughtful review with clients.

Despite the Potential 'Fiscal Cliff' You Should Stay the Course

The economy could face a "fiscal cliff" at the end of the year and this would almost certainly trigger a recession in 2013, writes Wes Moss, CFP^®. The stock market and investors could face other problems because a big part of the tax increase would include what amounts to a hike in taxes on capital gains and dividends. Capital gains taxes are likely headed higher next year, and there could be some negative impact on stock prices as this year draws to a close, with a sell-off as investors look to cash out large gains and lock in the 15 percent tax rate, according to Moss. Still, a late-year sell-off, fueled by certain tax increases, should be viewed more as a bump in the road than a brick wall. A quick look at the performance of dividend-paying equities vs. non-dividend-paying equities – after the dividend rate went to the preferential rate of 15 percent in 2003 – shows that dividend-paying equities actually underperformed, he notes. Large-cap, dividend-paying stocks could outperform the rest of the market because of their defensive qualities. Investors should stay the course, says Moss.

Financial Planning for Your Children

Children Are Expensive, So You Need to Have a Financial Plan

Planning for a child financially can be challenging because of the many unexpected factors, such as a trip to the emergency room or a costly hobby. The U.S. Department of Agriculture estimates that the cost of raising a child in the United States from birth to age 18 is $234,900 for the average middle-income family in current dollars, representing an increase of 23 percent from 1960, adjusted for inflation. "If everyone sat down and looked at the costs, the whole species would be extinct in 20 years," asserts CFP Board Ambassador Lynn Ballou, CFP^®. "And sometimes we don't know what the costs are going to be." CFP Board Ambassador Rita Cheng, CFP^® urges prospective parents to think about how they will revise their schedules and lives to accommodate their newborn. This includes determining whether one or both parents will continue to work based on earnings and expenses, Cheng says. But parents frequently fail to take into account hidden costs, she says. For example, they might think they can work long hours and pay for day care, not being aware that the majority of day care centers and schools close earlier than work hours and charge extra for extended-hours care, Cheng points out.

Talk to Your Child About Their Finances Before They Leave for College

Parents should discuss money matters with their children before they start college, and address who is going to pay tuition. Experts say this will give children a better understanding of the cost of a college degree and what they should expect from their parents financially. "If the parent has decided that the child doesn't have to contribute, you need to have that discussion and explain why," says Scott Halliwell, CFP^®. He believes choosing a college can teach financial lessons, considering the cost of the school will not improve the chances of getting a job. Experts encourage parents to have regular conversations about managing a budget and to give their children more financial freedom each year to prepare them for the real world. Halliwell says parents can micromanage their finances in the beginning. Experts also say parents should decide whether to give their child a credit card; they will need to co-sign for children under 21 unless the child has proof of income. "There's an advantage to co-signing a credit card – they can see what their child's spending money on but the parent's still on the hook," says Halliwell.

Financial Planning for Women

Women Must Overcome Barriers to Financial Success

As women continue to dominate roles both in the home and the workplace, earning more college degrees and advancing up the professional ladder, they often face a paradox between making smart life choices and long-term financial planning decisions. Some women may lack confidence when managing their finances, especially in an historically male-dominated world. Women are also more likely to “sweat the small stuff,” making the most of every dollar with smart shopping and short-term decisions, without always thinking about the big picture. According to CFP Board Consumer Advocate Eleanor Blayney, CFP^®, “When they find themselves hitting up the sale racks, women need to remember that even the best deal they find is worth far less than a smart investment in their retirement fund.” Some women also wait for others to handle their finances, and may continue to do so until they are forced, by a change in circumstances such as a divorce, to take control. Finally, women often are more goal-oriented than numbers-oriented. But by using finances and financial planning as a method for achieving those goals, many women become more financially savvy.

Financial Questions About Divorce

In this column and companion video, Jennifer Lane, CFP^® offers advice in response to consumers' questions about divorce and finances. A woman getting a divorce from her husband and with a high-school age child at home asks whether she should take the house and let the husband keep his IRA since they are both about equal in value. Lane suggests she consider asset values after taxes, and consider the house's selling expense and what would happen if the house sells for less than the asking price. Lane responds to another reader who earns less than her ex-husband and is wondering which parent's financial statements matter when it comes to a student loan application, noting that a large factor for aid is income from the primary parent that the student lives with most of the time. A third reader, a man whose ex-wife is supposed to maintain a life insurance policy as part of the divorce agreement, says he has two kids in college and is worried his wife is not keeping the policy current. Lane suggests that this man get an annual confirmation from the company, and also tells him to keep an eye on other available assets.

---

Abstract News © Copyright 2012 INFORMATION, INC.