Financial Planning Tips for High-Earning Women

By Sarah Carlson, CFP®, CLU®, ChFC®

When it comes to saving for retirement, women may have extra challenges, even those with a higher-than-average income. For retirement planning, CNBC reports that women save less than men. The pandemic worsened matters, with more than 2.3 million women leaving the workforce. ¹

Before the pandemic, women were retiring with about $70,000 less than comparable men.¹ Nearly 20% of working women have no retirement savings at all.² Moreover, on average, women live longer than men.³

These challenges mean it is even more important for women to arrange their finances to account for today's expenses while still setting aside funds for retirement.

Here are three keys to financial planning for high-earning women.

Diversify Your Accounts by Tax Treatment

For those with a high income, putting all your savings (retirement or otherwise) into accounts that do not offer some tax diversification may leave you facing a big tax bill in retirement. Instead of putting everything into a 401(k) or traditional individual retirement account (IRA) or everything into a Roth IRA and Roth 401(k), spreading funds across a variety of accounts may allow more flexible retirement strategies.

Also, consider talking to a financial professional early in the tax year to see what tax efficiencies you may be able to take advantage of for that year. Because certain credits and contribution limits phase out at a particular income level, lowering your adjusted gross income (AGI) or changing when you take distributions from a retirement account may help manage your tax bill.

Set Realistic Goals

Though you may once have assumed that having a particular income level or net worth would mean a life free from financial stress, it is important to set goals no matter your current status. The more income you have to work with, the easier it may be to strive for saving targets, though setting goals may still be challenging.

Some goals you may want to consider include:

• Saving a certain percentage of your gross or net income (including bonus)
• Eliminating any non-mortgage debt
• Donating a particular amount to a charity
• Hitting a certain target return on your investments
• Hitting financial milestones necessary for an early retirement
• Planning to leave a specific amount of your net worth to family

By making your goals ambitious but realistic, you may boost your odds of success. Goals that are too lofty might be discouraging, while those that are too easy may leave you yearning for a bigger challenge.

Make Your Debt Work for You

Some debt, like a mortgage or business loan, is necessary. However, high-interest consumer debt does not add much to your bottom line—instead of gaining liquidity you might use to purchase an asset, you are paying too much interest on things you bought. Accelerate the repayment of high-interest debt, if you have any, and investigate better loan options to use for working capital improvements. In this way, you may gain confidence that your debt is working to improve your financial position.

In Closing

With so many women potentially nervous about their retirement readiness, taking action now may help provide you with more choices in the future. Whether this means diversifying your retirement tax situation or getting rid of credit card interest for good, setting goals and plotting your progress may be the key to flexible financial planning.

 

¹  https://www.cnbc.com/2021/03/05/women-save-less-than-men-for-retirement-covid-has-made-it-worse-.html

²  https://www.cnbc.com/2020/03/05/nearly-1-in-5-working-women-have-nothing-saved-for-retirement.html

³  https://www.advisory.com/en/daily-briefing/2020/07/22/longevity

Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any ERISA or individual security. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal.  Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by WriterAccess.

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