Lifestage financial planning for women

Seven life stages that many women face together with a set of financial planning considerations relevant to each.

No woman’s life trajectory takes the same course which means that there is no one-size-fits-all approach when it comes to financial planning. However, there are generally a set of recognisable milestones or life stages that many women face which require careful financial planning and prioritisation while taking into account their specific needs and goals. In this article, we identify seven life stages that many women face together with a set of financial planning considerations relevant to each.

First job and career-building

Starting out on your career is the perfect time to begin your financial planning journey, although with a starting out income it may be necessary to find a workable balance between paying off your student loan, protecting your income, moving onto your own medical aid, and starting to invest.

With little in the way of accumulated wealth, protecting yourself against the effects of ill-health or disability is essential which means securing membership of an affordable medical aid option, and taking out an income protection benefit through a reputable insurance company. If your employer offers group life and disability benefits, these are likely to be more cost-effective than if you took out cover in your personal capacity.

Similarly, if your employer offers a group retirement fund, this is a great way to start your investment journey but be sure to do your research into the investment strategies available to choose from. With a long investment horizon, you can afford to choose a more aggressive investment strategy so as to expose your capital to growth assets such as property and equities.

While operating a fairly simple budget, use this opportunity to get into the habit of budgeting, spending less than you earn, and investing as much as you can. Creating an emergency fund should also be a priority at this life stage, so be diligent about setting money aside every month to create a buffer for unforeseeable expenses.

Ideally, use this time to find an independent financial advisor that understands you and who is happy to partner with you as your set out on your career.

Marriage or partnership

Deciding to get married is a critical life stage from a financial planning perspective as there are crucial decisions that need to be made before entering into marriage – most notably, choosing a matrimonial property regime and drafting an ante-nuptial contract that protects your future financial interests.

If you choose to get married without an ante-nuptial contract, you will automatically be married in community of property which may not be in your best financial interests. Getting married in community of property means that you will take on joint responsibility for your partner’s debt, including that which he incurred before the date of marriage. An ante-nuptial contract will cost around R2 000 to have drafted and notarised by an attorney, so rather seek legal advice and protect your interests at the start of your marriage.

As you enter marriage, make sure that you and your spouse agree on how your respective finances will be merged and managed throughout your relationship. Most importantly, take all steps to ensure that you remain financially independent in your own right by operating a bank account in your own name, maintaining your credit score, managing your debt repayments responsibly, and remaining actively involved in the day-to-day management of the household finances.

As a couple, this is the perfect time to set up a joint financial plan and to start plotting your lifestyle goals and aspirations together. Primarily, you may want to consider taking out life cover to protect each other in the event that one of you were to pass away. Most importantly, you and your spouse should ensure that your respective wills are updated and that an estate plan is developed to ensure that you are each adequately provided for in the event of a tragedy.

Child-bearing and caring

If you’re planning to have children, it’s always advisable to start planning well in advance so that you are financially prepared for the arrival of your child. Having a child affects almost every area of your financial plan and requires numerous, often far-reaching, decisions to be made.

Before falling pregnant, ensure that you are on the most appropriate plan option for your needs keeping in mind that you can only upgrade plan options in January of each year. Importantly, consider taking out a gap cover policy which will help cover the difference between what your doctor or specialist charges in hospital and the amount covered by your medical aid. Remember, if you apply for gap cover once you are already pregnant, it is standard practice for gap cover policies to have a general 10-month waiting period before any pregnancy-related claims will be considered. Also important to bear in mind are the costs of obstetric care, pregnancy testing and possible fertility treatment in the months leading up to your pregnancy and, depending on your circumstances, these costs can be enormous and largely out-of-pocket.

Once your pregnancy is confirmed, making decisions regarding your maternity leave, ongoing employment, and childcare options are key to creating a workable post-baby budget. If your intention is to stop work altogether whilst you raise your child, it is important to understand how this will affect your future financial planning. Resigning from your employment will mean losing your group life and disability cover and will mean that your contributions towards your group retirement fund will cease. Upon resignation, you will need to decide whether to withdraw or reinvest your retirement funding capital – although either option will result in your retirement savings being interrupted.

Stopping work altogether is a huge step that both you and your spouse need to be financially prepared for, specifically in terms of what it means to function on a single income and the impact it will have on your future employability and earning potential. If you intend to go back to work after your maternity leave, you will need to make financial provisions to tide you through your maternity leave. Ideally, seek clarity as early as possible from your employer with regards to your maternity benefits so that you can prepare your UIF claim and consolidate your budget. In addition, start exploring the costs and logistics of the various childcare options available for when you return to work, as these will need to be built into your budget early on.

Raising children to adulthood

As a mother to young children, these years may find you time-poor and cash-strapped as you juggle career and motherhood while at the same time paying off your home loan and vehicles. Convenience spending is likely to increase during this life stage specifically when it comes to outsourcing services such as child transport, tutoring, gardening and domestic services, pet walking, and catering, so be sure to spend time managing the household budget in order to contain expenses.

In terms of budgeting, it’s likely that your budget in this life stage will be particularly complex including multiple income streams and a multitude of expense line items that may be challenging to manage, so consider consolidating your finances through an app such as 22Seven, My Financial Life, or Moneysmart. From our experience, many couples tend to neglect their financial planning during this life stage due to the pressures and demands on their everyday lives. During this life stage, keeping up with bond repayments, contributing to your retirement fund while also saving for your children’s education may seem impossible, and you may need to find a workable balance with the guidance of an experienced advisor.

Sadly, the likelihood of divorce during this life stage is at its highest, with the latest South African divorce statistics revealing that the median divorce age for men is 45 and for women is age 41. Regardless of how frantic life is, it’s essential to stay in control of your finances and to prioritise saving and investing.

Independent children and elderly parents

As your children become more independent, it’s during this life stage that many women find themselves caring for their elderly parents or in-laws which can be particularly taxing if you’re also holding down a career. The amount of time that women spend doing non-income generating work – such as caring, grocery shopping, cooking, cleaning, and child-rearing – is well-documented although not always fully appreciated. Funding your children’s tertiary education while at the same time caring for and/or financially assisting your elderly parents can be financially, logistically and emotionally challenging, and it’s easy to lose sight of your own financial objectives.

Be cautious of putting your retirement funding on hold in order to cover the costs of your children’s tertiary education as it may be difficult to play catch-up at a later stage. In fact, it’s during this life stage that you and your spouse should start creating a framework for what your joint retirement looks like and to gauge how far off your retirement funding is. As and when you pay off your home loan and vehicles, consider channelling the extra payments towards boosting your retirement funding. Also, with increased net worth, you and your spouse may be in a position to cut back on your life cover.

Gearing for retirement

As you gear for retirement and finalise the details of your retirement plan, it’s important to factor in the reality that women tend to live between two and five years longer than men. If you’re younger than your spouse, this could mean that you will spend the latter part of your retirement years alone – an eventuality that should be carefully planned for.

In preparing various retirement funding scenarios, ensure that your financial planner prepares a retirement and estate plan assuming that your husband is the first-dying spouse to ensure that you will not be left financially vulnerable in such a situation. Once you have finalised your retirement plan, take time to update your respective wills to ensure that they are fully aligned with your estate plan and your wishes in terms of how you would like your assets distributed.

Preparing for old age

With longevity on your side, it is important that you prepare for the eventuality of outliving your husband – including what this may mean in terms of a long-term health plan. Give careful thought as to where you will live and how you will be cared for should your husband pre-decease you, keeping in mind that it may not be safe nor physically ideal to live on your own.

Given the long waiting lists at many reputable frail care and assisted living facilities, err on the side of caution and ensure that you put your name down at least two facilities. The onset of illness or disability later on in retirement can often be instant rather than gradual, such as in the case of a broken hip, deteriorating eyesight or aggressive cancer, so prepare for the possibility that you may need access to a frail care facility quickly.

Importantly, if you do find yourself alone later in your retirement, be intentional about ensuring that you have a reliable support system in place especially as you lose mobility and/or mental acuity.

 

Source: MoneyWeb – Gareth Collier