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MoneyTimes - March 11, 2014

Posted by Jill Kerby on March 11 2014 @ 09:00

MAYBE A COMFORTABLE RETIREMENT MEANS ‘A MAN IS A PLAN’ AFTER ALL

 

Anticipating International Women’s Day last week, an article in a national newspaper with the headline ‘A Man is not a Plan’ quoted a new book on wealth creation for women.

The gist of the book’s message was that if we women could just get our personal finances right, we too could end up like “fashion legend” Donatella Versace, “beer heiress” Charlene de Carvalho-Heineken, “the Russian businesswoman” Elena Baturina, and “widow of the late Apple founder Steve Jobs”, Lauren Powell Jobs.

Really?

With the exception of Baturina, who started her first technology based company in 1989, and whose subsequent construction firm flourished during her husband’s tenure as Mayor of Moscow, these ladies are all part of family dynasties or inherited their money.

Without those family or marriage links they may have become independently wealthy, but the experience of the vast majority of women in the western world is very different. Most women still take up paid employment and often interrupt that employment (and income and wealth accumulation) for family reasons.

Their long term financial prospects can be precarious without a shared income from marriage or partnership and the payment of state retirement benefits.

If you want to become fabulously wealthy, a global family business, marriage, inheritance, and rising to the top job in a global business (Sheryl Sandberg) is the usual route for women. In more rare cases, that wealth is self-created (Oprah Winfrey, Sara Blakely of Spanx) or even won (think lottery (Dolores McNamara).

For the rest of us, the aspiration to become “well-off” or financially independent (especially by retirement) takes more well-trodden routes, such as building a successful company or entering a high paying profession or industry with considerable financial perks (like shares), security and government patronage.

The hardest way is to start early and build your wealth with a combination of good financial habits that yield surplus earnings that are well invested over a long period.  For women, this path is easier if you share it with someone else – a husband or civil partner in order to share his/her income and assets including a pension.

Two wages really do stretch further than one in this country where married employed couples/partnerships enjoy far better tax treatment than single people or couples with only one salary. Two pensions also stretch much further in retirement (four, if dual state pensions are paid.)

On the subject of pensions and women, two financial services companies also used International Women’s Day to remind us how most women in this country will not be counting on private retirement income of their own when they retire.

Standard Life’s survey showed that while 79% of the working women they spoke with claimed to have some kind of pension scheme, on average they save just €240 a month or €2,880 a year, but expect to need the equivalent of €40,000 a year on which to live comfortably in retirement. (The average woman’s private pension pot at retirement, says Standard Life, is just €45,000.)

Since €45,000 will only produce an annual income of €2,000 (or €38.46 per week!) and you need a pension of fund of €500,000 to achieve an annual pension of just €26,000, the working women of Ireland are clearly delusional.

A woman of 20 needs to save €240 into a pension every month for 45 years to achieve a €26,000 income in retirement, said Standard Life’s Aileen Power. (Only 6% do so.)

Saving and investing as early as possible was emphasised by IFG’s head of pension investment, Samantha McConnell.

“When asked about their idea of what retirement means [women under 35] think of a time which is fun, filled with holidays and, specifically, not having to work,” she said, “Which poses the question, ‘how do they expect to fund for this expected lifestyle’?”

McConnell thinks young working women can’t start soon enough, and certainly no later than their mid-to-late 20s. The longer they leave, the more by way of lifestyle choices they will have to forgo if they want to play pension catch-up in their 40s or 50s.

 By then, often with mortgages, other debt and children to finance, it can be too late (even for both partners) to fill the funding gap. Difficult choices, like having to keep working much longer, or even to sell their only asset – their home, if they own one – may have to be made in their 60s or 70s.

The simple truth is that a comfortable retirement, let alone a comfortable working life, is only possible (outside of marrying well, inheriting and lottery wins) if substantial income – and surplus - is generated that can be saved and invested to accumulate income-generating assets.

 Aspire away to the fabulous wealth of Donatella, Charlene, Elena and Lauren, but they really are in a league of their own.

 

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