Financial planning for women at different life stages

Despite all the “marry a rich man and be a tai tai” jokes, most women are wise enough to plan their own finances. However, a common mistake is to make the financial planning a one-off event: one hour-long kopi tiam chat with a financial planner, and then never again discussing their savings for decades. This isn’t ideal, and women should be prepared to adjust their financial goals as they reach different life stages:

1. Starting out in your early-20s

The greatest threat to most young women is inflation rate risk, and it’s especially insidious since the consequences come further down the road.

Simply put, inflation rate risk is the possibility that the rising cost of living will outpace their earnings and savings. For example, using the MAS inflation calculator, we can see that a medical bill of $100 in 2009 would cost $123.90 in 2019; an increase of almost a quarter in just 10 years.

Consider that, for a young woman in her 20’s, there’s probably more than three decades to go before retirement. That’s a long time for prices to keep climbing, every year.

As such, young women should start investing early, to ensure their wealth grows at  a matching pace. The inflation rate in Singapore is about two to three per cent per year, but many financial products - like insurance savings plans or unit trust funds - can meet or even beat the inflation rate. There are a wide variety of options, so speak to a financial planner to find the best choices for you.

A second concern for young adults is building an emergency fund

An emergency fund consists of six months of your expenses. This is to cope with situations such as job loss, or unexpected costs.

If you don’t have an emergency fund, you could be forced to use personal loans or credit cards. These can incur very high interest rates, which are difficult to pay off later. By having an emergency fund, you can rely on your savings, and live debt-free.

You may not be able to set aside enough at one go, but that’s fine: just set aside a portion of your paycheque to build this emergency fund, as and when you can afford it (e.g., some people might set aside 20 per cent of their pay, until they have saved up six months of expenses).

2. Preparing to settle down, from your late 20’s to mid 30s

For most people, the 30’s are the most critically important phase in financial planning. This is because most of your major financial decisions will be at this point in your life, such as:

●      First home

●      Wedding

●      First time buying a car

●      Expecting your first child

●      The start of looking after ageing parents

Because this life stage involves a lot of short term goals (e.g., trying to save up for your half of the wedding cost), many women find products like targeted endowment plans to be useful. These are savings plans that pay out after a fixed period of time, such as 10 years, and which also provide basic life insurance during the interim.

A major priority in this life stage is to pay down debt, and keep it low. This is especially because many major loans - such as home loans - are affected by existing debt. For example, if you have a lot of late payments on your credit card, this can even affect your approval for an HDB loan.

Financial planners can offer some solutions, from helping to structure repayment plans (e.g.,designing a repayment scheme that pays off higher interest loans first), or helping to find ways of refinancing your debt to lower interest rates.

Note that, because women are the child bearers, they’re likely to have higher medical needs than men. It can be a good idea to complement your MediShield Life with an Integrated Shield Plan, from insurers such as Great Eastern.

3. In your prime between your 30’s and 40’s

This life stage can be quite different for women than for men, due to cultural inclinations.

Women are more likely to be home makers, and this could mean you will leave the workforce. This makes financial planning critical, as the family will now hinge on a sole breadwinner.

Home makers who run a side-hustle may want to consider simple investment plans, that don’t require too much capital or monthly contributions. For example, there are blue chip investment programmes that start from as little as $100 per month (you can buy as many shares as $100 will get you that month, whatever the price - which means you also get more shares if the price drops).

For women who are still working, but considering leaving the workforce, talk to financial planners about maintaining insurance protection.

For example, say you’ve had a whole life insurance policy for decades, but now want to leave the workforce to look after children; your income will fall significantly. It may be possible to surrender your whole life policy and get the cash value, while switching to a more affordable term plan that still provides coverage. However, it’s important to make such decisions with care, as the accumulated cash value may not be high, and some policies may impose penalties. It’s best to consult a financial professional, on whether - and when - it’s ideal to surrender your policy.

It is vital not to let your insurance lapse; insurance becomes more important as your family is transitioning to a single-income home.

4. Planning for retirement as you near 50 and beyond

In the early stages of your life, it was important to meet or beat the inflation rate. As you are preparing for retirement however, you should switch from an emphasis on wealth accrual, to wealth protection.

It’s important not to take big risks with your savings, as it’s harder to recover from financial mistakes in your 50’s or beyond. It would be a disaster if your stock portfolio were to crash two or three years before you retire, for example.

As such, mature age women might aim to put more money into fixed income products, such as bonds or bond funds. There’s also the good old fashioned method of ramping up your CPF for retirement, with voluntary top-ups. 

As we grow older and our life circumstances change, our financial plans need to be adapted accordingly. So whatever stage of life you’re in, do make sure to conduct periodic reviews