The article below was recently published in DRI’s Newsletter of the Women in the Law Committee, and written by WealthChoice President, Bridget Grimes. We are excited to share our thoughts on how women attorneys can live their ideal life now, and in retirement with thoughtful financial planning.
It is time to change the way we plan for retirement, since the way we look at life and retirement has changed.
Traditionally, folks worked hard, saved up for retirement, reached a magic age when they retired from their jobs and lived the rest of their life in leisure, finally on their terms. They put off living their ideal life until the last decades of their life. They sacrificed happiness now for happiness later.
Our conversations with professional women reveal that there is a desire for life to be more fulfilling now, and to live life on their terms now. There is also an interest in continuing to work far into the future, partially out of financial necessity, but largely because this generation of smart, accomplished women likes to work. They like the many benefits that come with continuing to be stimulated and relevant.
From a financial planning perspective, we find this super exciting. Working longer changes the planning assumptions for a client. It opens up many options for women in their present life, and it may be part of the solution to financial security later in life. Honestly, this seems like an obvious solution, but something my industry has just missed because of our focus on traditional planning processes. We explored this idea a bit more and are excited to share our thoughts with you.
Live life now, and work longer.
What does your ideal retirement look like? Historically, this was answered something like this: travel, maybe volunteer work, more time spent with our loved ones, lots of leisure and definitely no work. What we’ve found after years of working with women executives is that our ideal retirement looks different now. And that difference will affect our quality of life now; how we save for retirement now while we are in the thick of our careers; and our life in retirement.
When we sit down with a new client our discussion begins with what their ideal life would look like. If you could choose, how would you live? We are hearing more often that this life includes years of working hard, and then a point in time when they are willing to dial back the work intensity and work part time. The reason for this is twofold: First, they will probably need the money; but secondly, they want to continue working. They like what they do, but want to get to a point where work is truly on their terms.
One study reports that 72% of boomer pre-retirees want to keep working after they retire. They want work to be more on their terms, allow for better quality of life, but continue to work. And there are anti-aging benefits to continue working as we age.
For attorneys, we see this is becoming more and more common, regardless of age. As an example, one older attorney we work with needs to continue to work out of financial necessity, but picked an age she was comfortable with when she can dial back to part time, and eventually choose to stop completely. Another middle-aged attorney who is in the thick of life with high school aged children, a demanding career, and funding many different financial goals, has built into her financial plan that she will continue to work several more years, then launch her own firm with her largest clients and continue to serve those clients indefinitely.
Leaving a large firm and choosing to serve a small group of clients is something we see more and more, not just for attorneys, but for women of all professions. Yet another attorney, this one under 40, left her high paying position and started a firm based around the relationships she had with a few key clients. Her goal was to live life on her terms now, and know that she could continue to fund that as long as she earns an amount we determined will cover her costs and allow her to continue to save towards retirement.
In each of these cases, working longer allowed the attorney to live life on her terms now, or certainly sooner than would have been the case in the traditional retirement scenario.
What does this mean for retirement planning for executive women?
We see this as a real sea of change in how we plan for retirement for executive women. Conversations with these high achieving women often reveal a lack of balance in life, in addition to many other frustrations. There is a sense that down the road, once they have saved enough money and reached a certain level of achievement in their career, they can finally breathe easily and enjoy life on their terms. But if retirement means continuing to work in some capacity, does it make sense to keep waiting for the future to live your best life? By working longer, and continuing to earn an income, this gives you an opportunity to live your ideal life far longer than we have in the past.
Our thought is that financial planning for retirement should focus on living life for today, and continuing to work longer in the future. Rather than putting off travel and leisure, perhaps we have jobs that might pay less, but offer us lifestyle benefits that bring us real value to our lives. If we know that a client may continue to work 10 or 15 years longer in life, even if not at the same level of pay, this changes their financial situation.
We suggest a more dynamic strategy around distribution rates from a portfolio. Distribution rate is the amount a client can distribute from a portfolio. It may mean not drawing down on a portfolio until many years later in life. Or, perhaps taking a much smaller annual distribution from their portfolio, and ramping that up later in life. It may mean taking a small distribution out of the portfolio longer. The solution will depend on the client’s personal life goals and what we have to work with financially.
Another change to retirement planning will be the need to manage cash flow much more actively. If a client chooses a position with a reduced income, there will be a real need to prioritize expenses. While we absolutely want clients to live fulfilling lives today, we want that to continue into the future, as well. Planning will need to focus on having enough money to last throughout life. The solution here could include monthly review of cash flow by using a solution like QuickBooks online, or another cash flow management tool.
According to statistics, the average woman retires at age 62 and lives about 30 years in retirement. From a financial planning statistic, this means the client needs to have enough money to replace their pre-retirement income for 30 years. We planners have focused on how big the pot of money is when the client plans to retire so that they can take out 4% per year over 30 years, therefore not running out of money. But if women continue working past 62 and possibly even past 70, this allows their portfolio to continue to grow, their social security benefit to be deferred and grow, and allows them to spend more when they are younger, knowing they will continue to contribute to retirement longer than in the past, and to be needed for fewer years in retirement.
Planning around working longer has its challenges and does not replace saving for retirement. As we know, life is not certain. A survey from Voya Financial reported that 60% of Americans retire earlier than planned due to health, job loss, or need to care for spouse or dependent. This underscores the need to plan and to consider all alternatives. However, we do think that it is possible to have fulfilling careers now, and into the future, that allow for the quality of life our clients are telling us they value.
Financial planning needs to take into account the change we are seeing in the definition of retirement, and plan for a way that allows our clients to be financially secure, given this change, while allowing them to live life on their terms. We know executive women work very hard for a quality of life down the road. The goal should be to help you live that life now and long into the future with better planning!
Bridget Grimes, CFP® is the President of WealthChoice, a boutique financial life planning firm that specializes in helping executive women take control of their financial lives. Bridget created WealthChoice after working with professional women and their families for years, and finding a great need for customized solutions that addressed the financial challenges unique to women. She believes in empowering women through education, collaboration, and support so that they have the confidence to take action for a better life.
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