Principal Funds. Women and Wealth. Invest in yourself. You deserve it. A step-by-step guide to help you achieve your financial goals.

Transcription

1 Principal Funds Women and Wealth Invest in yourself. You deserve it. A step-by-step guide to help you achieve your financial goals.

2 Take Time for You As a woman, you probably have a lot of responsibilities. So your days can get pretty busy. But in the process of getting everything done, your own needs can get lost in the shuffle. Your financial plan is a good example. If you ve never sat down and created a plan, now is the time to do it. That s because women have some unique challenges that make financial planning especially important. Consider that: The cost of being a woman (due to time off work for having children, caring for elderly parents, etc.) is estimated at $430,480 over a lifetime. Fewer earnings often translates to lower Social Security benefits and fewer dollars in retirement savings. 1 Women generally live longer than men. 2 Eighty-five percent of women aren t saving enough for retirement. 3 Our lives are busier than ever. More than 70 percent of moms are in the workforce today 4 compared to just 47 percent in And yet today s moms spend 50 percent more time with their kids than their mothers did. Many (but not all) women tend to be less confident than men when it comes to financial decisions. (Ironically, though, women generally make better financial decisions than men.) 6 Combine all that with the high divorce rate and the fact that almost half the women over 65 years of age in the United States are widows 7 and you can see why it s so critical for women to take charge of their finances. It isn t hard, and it doesn t have to take a lot of time. We ll walk you through the basics. Here s the Process This workbook will take you through the process of setting financial goals, creating a plan, and putting the plan in place. Step 1: Get Organized Step 2: Set Goals Step 3: Prioritize Step 4: Create Your Plan Step 5: Educate Yourself Step 6: Put Your Plan into Action Step 7: Review Your Plan 1 National Women s Law Center, April Social Security Administration. 3 Transamerica Center for Retirement Studies, Employment Characteristics of Families, Bureau of Labor Statistics, April Working Mothers in the U.S., Bureau of Labor Statistics. 6 Male Investors vs. Female Investors, The Wall Street Journal, May Serving Widowed Clients Whatever Their Age, Financial Advisor Magazine, 2011 US Census Bureau July Principal Funds Women and Wealth

3 Step 1: Get Organized Let s start by helping you get organized. A great tool for this step is the Create your family legacy workbook from Principal. It gives you a place to write down your important financial information like account numbers, contact information, insurance policies, locations of important papers, and more. You can also start by listing (below) your assets, liabilities, income, and expenses so you can see where you are now. What s Your Net Worth? Add up your assets (all financial accounts, home, car, and other property) Checking and savings accounts Retirement accounts Other investments Real estate (home, other property) Other assets Total assets Add up your liabilities (mortgage, car loan, credit cards, and other debt) Mortgage(s) Credit card debt Car loan(s) Student loan(s) Other debt Total liabilities Net Worth (Total assets minus total liabilities) Principal Funds Women and Wealth 2

4 What s Your Net Income? How much money do you have left over at the end of each month? And where does most of your money go? Knowing this will help you figure out how much you can put toward your financial goals. It might also help you see where you can cut back a bit to free up more money for savings. Add up your monthly income Salary Income from investments Income from a business Other income Total income Add up your monthly expenses Fixed payments (home, car, etc.) Variable costs (groceries, utilities, etc.) Want (vs. need ) expenses Other expenses Total expenses Net Income (Total income minus total expenses) Your Accounts Make sure to keep this information in a safe place. Account Name/type Financial Institution Account Number Website Username & Password Checking Savings IRA 401(k) or 403(b) Other retirement Mutual fund Annuity 3 Principal Funds Women and Wealth

5 Step 2: Set Goals Goals give you direction over the long run. And in the short term, they can help you stay motivated. So think about your financial goals for the months, years, and decades ahead. Not just how much money you d like to have. But what you d like to be able to do (for yourself and/or others) with your wealth. Then write them down here. Don t worry about prioritizing goals at this point. We ll do that in the next step. My retirement goals include: For myself, I d like to: For my family, I d like to: My other financial goals include: Principal Funds Women and Wealth 4

6 Step 3: Prioritize Now that you ve listed your goals, let s figure out which ones are most important to you. Think about which goals you have to do (such as paying taxes and your mortgage or rent). Then consider things you need to do (saving for retirement, for instance). Finally, decide which goals you want to do (traveling, buying a second home, etc.). Have to Goals Need to Goals Want to Goals 5 Principal Funds Women and Wealth

7 Step 4: Create a Plan We re making progress! You know how much money you have left over each month. You ve listed your goals. And you ve prioritized them. Now you can work on a plan to make these goals a reality. A financial advisor can help you through the process. Your Plan for Retirement Consider these questions as you work with your advisor on a plan for your retirement. If you were to retire today, what percent of your current household income would you need to pay the bills and do the things you want to do? % At what age would you like to retire? When you retire, about how long do you think your retirement will last? (Consider your current health as well as your family s health history.) years As you work with your advisor, make sure to chat about life insurance and disability insurance. After all, even if you have life and disability policies already, it doesn t mean you have enough or the right kind. How About Your Estate Plan? You have the right to decide what should happen with your home, your savings, and your treasured belongings when you pass away. An estate plan can help you put those wishes in writing. A good estate plan should also include a power of attorney and a living will. And if you choose, an estate plan can also include trusts for your heirs or a favorite charity. How comfortable (or uncomfortable) are you with risk? Keep Insurance in Mind Insurance yawn, right? It s a pretty dry subject. But when the chips are down, insurance can quickly become one of the most important things in your life. Principal Funds Women and Wealth 6

8 Step 5: Educate Yourself One of the best things you can do for yourself is to learn more about saving and investing. You don t have to be the next Warren Buffett. But you should understand some basic concepts. Mixing up Your Investments Choosing a mix of different kinds of investments is a good way to manage risk and give your investment the potential to grow over time. That s because some kinds of investments tend to move in the opposite direction of other kinds of investments. For instance, stocks and bonds tend to move in opposite directions. If the value of your stock investments goes down, then the value of your bond investments may increase. Overall, this helps you get a more consistent return over time. Keeping up With Inflation Inflation is a general increase in the prices of goods and services. As prices go up, your money buys less and less. Check out this chart to see what we mean: How Inflation Affects Buying Power Current amount Years from now Future amount needed to buy the same goods/services $50, $64,004 $50, $81,931 $50, $92,697 $50, $104,878 Source: Investopedia.com Calculator Assumes 2.5% inflation rate. Mixing Up Your Investments That s why it s smart to consider inflation as you invest. You want to give your investments a chance to grow enough to keep pace with (or beat) inflation, without putting your savings at too much risk if the market goes down. Potential return Equity (stocks) Fixed income (bonds) Retirement Accounts There are several different kinds of financial accounts just for retirement investing. You may have a retirement plan like a 401(k) or 403(b) through your employer. Represents sample allocations. Potential risk You can also save for retirement outside of an employer-sponsored plan. This is usually done with an individual retirement account (IRA). 7 Principal Funds Women and Wealth

9 Like a 401(k) or 403(b) plan, contributions to traditional IRAs are made on a pre-tax basis. That means you don t pay taxes on the money you invest until you withdraw it. An exception is the Roth IRA. Contributions to a Roth IRA are made on an after-tax basis. If you think you ll be in a lower tax bracket in retirement, then a traditional IRA might make more sense. If you re in a lower bracket now, then a Roth IRA may be better. Your tax professional can help you decide what works best for your needs. 65% of people in the U.S. carry credit card debt from month to month. 8 If you re ready to pay off your debt, start with the debt with the highest interest rate first. Pay as much as you can on the principal until it s paid off. Then use the money you were paying on that debt to tackle the next one. Social Security We ve all heard of Social Security. But once you start looking into the details, it can get a little confusing. Let s go over some of the basics. Debt: Good and Not-So-Great The national debt makes a lot of headlines. What we don t hear as much about is individual debt. Debt keeps a lot of people from achieving their financial goals. Sixty-five percent of people in the U.S. carry credit card debt from month to month. 8 And their average balance is over $4, Of course, not all debt is bad. A home mortgage, for example, may help build long-term equity. And it generally offers tax advantages. Revolving credit card debt, on the other hand, can do a lot of financial damage. Monthly interest compounds quickly, putting the payer deeper and deeper in debt. How Social Security Works Social Security was created as a financial safety net for older Americans. Workers pay into the system during their working years (through the FICA deduction from their paychecks). When they reach their full retirement age (currently age 66 for those born before 1960), they can start receiving benefits. The amount of your Social Security benefit is based on the amount you ve paid in over the years. In general, the more you ve earned, the more you ve paid into the system over time. So the more you ll get back in benefits. To get an estimate of your Social Security benefits, visit ssa.gov or call The Average American Is in Credit Card Debt, No Matter the Economy, CNN/Money, February 9, Principal Funds Women and Wealth 8

10 Step 6: Put Your Plan Into Action Feeling a little overwhelmed? That s OK. Just remember that you don t have to do this on your own. A financial advisor can help you through the whole process. A good financial advisor can help you: Assess your current financial situation Set realistic and achievable goals Create a financial strategy Help you put your plan into action Help you keep your plan on track Finding a Financial Advisor If you don t know any financial advisors, ask for recommendations from people you know and trust. Collect the names of several. Then choose several to interview. Ask questions like these: 1. How long have you been working as a financial advisor? In general, the longer someone has been in the business, the more insights they may have on what works and what doesn t. On the other hand, someone with less experience but more recent education and training may be more open to new products and strategies. 2. What are your credentials? A financial advisor should have the appropriate insurance licenses and securities registrations. Beyond that, there are several professional designations they could have. Examples include: Certified Financial Planner TM (CFP ) or Chartered Financial Consultant (ChFC ). 3. What kinds of financial solutions do you offer? It s important to have access to a broad range of solutions, because you ll likely have different financial needs during your life saving for retirement, saving for college, life and disability insurance, and so on. 4. What s your process? Financial advisors who have a very brief, narrow process for creating a financial strategy may just be trying to sell you a product. You need someone who will take the time to look at your whole financial picture and create a comprehensive strategy for the future. 5. What are your fees? As your financial advisor works with you to help meet your financial goals, be sure to understand how he or she is compensated for the value brought to the process. After you ve interviewed each financial advisor, eliminate any who don t meet your minimum requirements. Then just trust your instincts. Go with the one you feel most comfortable with and who you think will best help you reach your goals. 9 Principal Funds Women and Wealth

11 Step 7: Review Your Plan Things change. Kids grow up. People get married. Or divorced. Jobs come and go. Changes like these can have big impacts on your life. So your plan needs to change, too. Keep your plan on track by reviewing it at least once a year. If you work with an advisor, go over the plan with him or her. By creating a financial plan and making sure it keeps up with your life you can achieve your goals. By creating a financial plan and making sure it keeps up with your life you can achieve your goals. And most important, live the life you want to live. Keep Track of Recent Life Events Important milestones: Changes in family circumstances: Changes in professional circumstances: Events or other changes you d like to discuss: Progress made on goals: Long-term vision for yourself and your family: Principal Funds Women and Wealth 10

12 Investing involves risk, including possible loss of principal. The subject matter in this communication is provided with the understanding that Principal is not rendering legal, accounting, or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requireme Principal Funds are distributed by Principal Funds Distributor, Inc Principal Financial Group, Inc. MM /2017 t qy