Personal finance tips for women and couples

EFE’s Isabel Barrow shares how women's investment behavior is changing

Ric Edelman: Welcome back to The Truth About Your Future. Time for a blast from the past. Welcome to the program, Isabel Barrow. Hello, Isabel.

Isabel Barrow: Hi, Ric.

Ric Edelman: Isabel, of course, you know her very well. She co-hosted my old radio show with me quite often and substituted solo for me when I didn't feel like working. Isabel, of course, Director of Financial Planning at Edelman Financial Engines. So I'm going to let you have the microphone since you're an old hand at doing financial planning issues regarding women.

Isabel Barrow: Well, it is certainly a topic that I think deserves some conversation.

Ric Edelman: Women are making economic inroads that are unprecedented in U.S. history. 40% of households now have women as a primary wage earners. 30% of businesses are owned by women. More than half of all management and professional jobs are held by women. Nearly half of all millionaires in America are women. And women now control more than half of all the wealth in the United States. Anyway, what are all these statistics mean to you, Isabel?

Isabel Barrow: In general, the majority of my clients are couples. They come in and they plan together. Often there's an age difference between the husband and the wife. And if it's a case where the wife is the younger of the two, now the issue of planning for longevity is even more important for her because women tend to live longer. In fact, recent studies have shown that women are averaging life expectancy around 82 and men around 78.

You know, obviously, the pandemic may have changed some of that math in the short term, but overall, we still expect those longevity differences to continue, and people are living longer and longer. I read recently that the U.S. Census Bureau predicted that by 2060, life expectancy is projected to be around 87 for women and 84 for men. Women tend to overall have lower income, both pre and after retirement because of lower Social Security benefits, fewer pensions when you compared to their male counterparts. And women also tend to be more reliant on those types of income streams than men. According to Social Security, women are making up 64% of Social Security beneficiaries age 85 and older. And even at age 62 and over, it's 55%.

Ric Edelman: So with all of this in mind, what do women need to consider about planning for retirement?

Isabel Barrow: Well, they need to plan to live longer, and they need to plan for having less income to meet those needs from those secure sources. They need to start sooner. They may need to consider working longer, maybe part time work in retirement and saving more. But the sooner you start to plan and the sooner you start to lay out your objectives, the more likely you are to be able to meet those goals.

Ric Edelman: And that's really the key, right? It's not just developing the financial plan, but it's also engaging in investing. You know, so many people, as you just said, defer it. I'll just worry about it later.

And even if you're not a woman, you need to think about if you have a woman in your life. You have a wife, mom, a sister or an aunt, a friend, you know, who may be either partially or fully dependent on your income, you may need to be planning for their longevity, not your own longevity as it relates to your financial planning. Because if they run out of money due to their lack of planning, well, guess who they're going to turn to for help?

Isabel Barrow: Exactly. You know, here at Edelman Financial Engines, we plan for these contingencies within our financial planning program. We have a discussion about health, about your family, who might be dependent on you, who may need your income.

What women can do if they have too much cash on the sidelines

Ric Edelman: Are you noticing different behaviors? You've got clients, both men and women, married and unmarried, singles versus couples. Are you notice different behaviors among your clients?

Isabel Barrow: So if we broaden that question to not just our clients, but women overall, a recent study from Fidelity looked at women's changing investment behavior, in part due to the pandemic and in part just due to the increased prevalence of women who have the lion's share of these investable assets. Two thirds of women are now investing extra savings outside of their emergency funds, which is a 50% increase over the last couple of years. But only one third of women are feeling confident in their ability to make investment decisions. And I think in general, women tend to have too much cash on the sidelines. And I think in part it's a lack of confidence about how, when and where to invest this excess cash. And sometimes I think admitting to a financial planner that you're a novice or you may have a PhD in neuroscience, but you don't understand how to build a portfolio. That's an intimidating conversation if you haven't done it before. And the good news is that financial planners are very used to this. You know, nobody walks through our doors knowing everything, right? Everyone's coming here to look for help and guidance and education.

Ric Edelman: So women having lower levels of confidence are really not well founded. They deserve to applaud themselves, give themselves a pat on the back, because they're actually much better at investing than they give themselves credit for.

Isabel Barrow: Absolutely. I. I think overall studies have shown that that in and of itself is what increases their returns. So it's not to say that trading is bad but trading too much and for the wrong reasons can reduce your long-term returns.

Financial coaching to get couples on the same page, financially

Ric Edelman: All right. So this is, you know, a fine conversation to have if we're talking about a client who is a woman versus having a conversation with a client who is a man. But I'm willing to bet that the vast majority of your clients are married couples. So talk about the dynamic therefore. The two of them are sitting (and you've got a very pretty office right behind you, for those that are watching this conversation on our video, which you can get at our website, TheTruthAYF.com) - you'll see Isabel in a very pretty office setting, and right behind you is a very pretty little couch. And they're sitting side by side on that couch. And you're talking with them about how much money they need to have in cash reserves, how much they need to have in investments, and how much of those investments need to be in stocks. But women are generally and of course, we're horribly stereotyping here, we get that - but women are generally more risk averse, they're more cautious, they're less confident. Men, you know, being men, you know, we're just more going for it and gusto and trading and market oriented. So how do you resolve the inherent conflict between the natural tendencies of the wife versus that of the husband?

Isabel Barrow: They have to be willing to take our advice because it's my job as a financial planner to look at all of these things, to look at everything with a dollar sign attached, and try to help them understand what's the appropriate portfolio. And sometimes it's a little bit of a happy medium perhaps between the two, right? But really, again, that's my role as a financial planner to sit down and say, okay, well, if Spouse A wants to be over here in a 50% stock, 50% bond portfolio, that's what they're comfortable with. And Spouse B is over here betting it all on black, taking it to Vegas, you know, maybe we are - number one, looking at potentially some different portfolios for each of them that fits with their comfort level. But more likely, we're looking at the whole pot working toward their joint goals. So yeah, there is some conversation that has to be had about, look, this may be where you want to have it and where you're most comfortable, but can we bring you from that very conservative approach to somewhere that may be more in alignment with what your long-term goals are? And I think for a lot of people, women or men, having someone else to manage those assets for you creates a level of comfort with maybe a risk tolerance that you wouldn't have otherwise selected. You know, if somebody else is responsible for it, that takes the heat off of you. You know, you're the husband investing over here and betting it all on black and your wife is getting angry with you every day because it's so volatile, give it to somebody else and let them kind of take the heat, so to speak.

Ric Edelman: Yeah. In other words, he's not going to convince her to reduce the amount of cash. She's not going to convince him to reduce the amount of stocks. So by allowing you to be the arbitrator, the mediator, this is resulting in compromise. And together, if it doesn't work out, they can both blame you.

Isabel Barrow: Exactly. It's better than them blaming each other. I'll take it.

Ric Edelman: That's Isabel Barrow, who's Director of Financial Planning at Edelman Financial Engines. And if somebody wants to reach you, Isabel, how would they do that?

Isabel Barrow: You can reach us at 833-Plan-EFE.

Ric Edelman: 833-Plan-EFE. Isabel, thanks so much for joining us on the program today.

Isabel Barrow: Thanks, Ric. Thanks for having me.

Ric Edelman: You can also reach out to Edelman Financial Engines by going to their website PlanEFE.com/Ric. Isabel and I had a conversation for almost a half hour. If you'd like to watch the entire conversation, and I do mean watch because we recorded it on video as well, just go to our website. TheTruthAYF.com. I invite you to read the April issue of my monthly newsletter. This month's stories include: Why the Boomer Generation is Just Getting Started, What happens to your digital assets when you die, Why you might not be as good at making financial decisions as you used to be. A look at two of my favorite investments, exchange traded funds from iShares and Global X ETFs, and an exclusive interview with Matt Hougan, Chief Investment Officer of Bitwise Asset Management. Plus Jean's monthly column featuring her word of the month and Q&A, where I respond to reader questions. Every month, you get 16 pages filled with the information you need about the five personal finance topics that matter most: longevity, retirement security, exponential technologies, blockchain and digital assets and health and wellness. Subscribe now for just $39 for a full year subscription, 50% off the regular subscription price. Just go to TheTruthAYF.com.