Moms are particularly disadvantaged financially due to the fact that there is still a gender pay gap and women earn 83 cents for every dollar men earn. It’s like women working a typical 9 to 5 day, but working for free from 3:40 p.m. During the pandemic, women lost their jobs at a higher rate than men. To add insult to injury, women haven’t gotten those jobs back either! There are several reasons for the significant job losses. Women are the first to care for children, aging parents and loved ones. Women are also more likely to work in social sectors like retail, hospitality and tourism, all of which were hit hard when the pandemic began.
It’s even harder for single moms to prioritize their financial future. The median income for single-mother-led families in 2020 was around $49,214, well below the median of $101,517 for married couples. With this kind of financial disparity, you need to take control of your money. Barry recommends organizing your lifestyle around saving for the future instead of building a lifestyle and hoping to save for the future.
Moms can maximize their money in several ways. The first is to save strategically. A recent study found that if 100% of lost earnings due to the pay gap were invested over a 40-year career, women working full-time, full-year could save almost $1.6 million for their retirement. If you’re currently employed and have an employer-sponsored retirement plan, I recommend dedicating at least 5-10% of each paycheck to your 401(k). If you’re taking a break from your career to raise a family or care for aging parents, be sure not to leave 401(k) locked up or invested in a fund that has low yields and/or fees. If you don’t work outside the home, you can open an IRA as long as you and your spouse file a joint tax return. You can contribute up to $6,000 to an IRA this year. If you are 50 or older, the contribution limit increases to $7,000.
Another way for mothers to maximize their money is to prepare for long-term care. Women statistically live longer than men. It is important to have a plan that will outlast you. Long-term care insurance helps cover the costs of home nursing and home health care later in life. It can also help families pay for necessary care for chronic conditions, such as Alzheimer’s disease or dementia. While some employers offer long-term care insurance as part of their benefits package, most people purchase it through an insurance agent or financial professional. Consider your options and decide if a traditional or hybrid policy makes sense. Traditional long-term care insurance policies typically come with lifetime annual premiums, while hybrid policies may allow you to reduce or accelerate the death benefit amount. Another option is a long term care annuity.
The last tip is to plan for taxes. Many people forget that if their spouse dies, they only have one tax year left to file their taxes jointly. The following year, the surviving spouse must file as the sole filer. It could cost you money if not done correctly. A comprehensive financial plan should include strategies to minimize your tax liability. At Great Waters Financial, we take all the components and make sure the plan works in your best interest. If you want to learn more about our planning process, follow us on Facebook and LinkedIn.
