I read with interest the following opening to Karn DeMasters article “Fear Factor” in Financial Advisor Magazine:

Women are more afraid of becoming “bag ladies” than men, and it makes them approach investing and saving for retirement differently, assuming they have managed to tackle either of those chores.

My first thought was that men can’t become bag ladies; men become homeless bums. But the point that Women Have Unique Financial Needs is one that I have written about before. DeMasters’ article went on to confirm that these fears have grounds writing,

The fear factor is not completely misplaced since, in general, women earn less than men so they receive smaller pensions and Social Security benefits, they are less well educated about investing, and they live longer than men and therefore need an income for a longer period of time, the advisors say.

Living longer is the biggest factor facing women. We work to project every client living through their 100th year on average regardless of their gender, but it is especially important for women. This projection means that on average their safe spending rate today can increase with inflation and not run out of money until the end of their 100th year (when they are turning 101).

Since that is “on average” that means they have a 50% chance of making it to the end of their 100th year. That gives clients an above 80% chance of not running out of money before they die. An above 80% chance of not outliving your money is what is considered “safe” in the financial planning world. You can never get to a 100% chance unless you vastly underspend your resources.

These chances assume that you set a withdrawal rate once at age 65 and blindly increase it every year for inflation. That is the right way for a study to determine the current withdrawal rate, but never the right method in practice. In practice you should do that computation every year and adjust your spending rate accordingly. We spent a year and a half developing our Maximum Safe Withdrawal Rates in Retirement. If you haven’t read that article I highly recommend it.

Probably the worst and most common mistake is to think that you can invest everything in a bond portfolio and spend all of the interest income. That would be a good path to becoming a bag-lady.

DeMasters’ article also highlighted some of the experiential causes for women’s fears:

“Part of that is due to a time factor in that most women in a couple handle the checkbook and immediate finances of the household and men handle the investments,” he adds. “This leads to many women being more concerned with income rather than just accumulation of assets and leads to them being more conservative in investments.

and

“Men have a different kind of anxiety about assets,” says Katherine Lintz, founder of Financial Management Partners in St. Louis and Denver. “Men are afraid of what will happen to their families if they die.

I’ve seen several couples where the husband has handled the investments and handled them well. And when I say that I would not make  large changes the investment approach and if the husband wants to continue handling their finances he is doing a great job I get an interesting reaction. “Finally,” he says, “I’ve been looking for an investment advisor I could count on to take over our finances! I’m slowing down and I want to make sure my wife has someone with a good investment philosophy looking out for her if anything happens to me.”

Having seen how the non-fiduciary financial services world can take advantage of widows, I think that is a wise course of action. DeMaster goes on to write:

“The widow is really afraid,” notes Hannon. “The divorced woman, especially right after the divorce, is emotional and frail, so our practice does a lot of hand-holding. We do seminars, and often the women do not feel they belong there because they think they do not know enough, so we give them information and tools to deal with the situation. Our women clients who have always been single are in much better shape with less fear.”

Women who have been widowed or divorced need a fiduciary standard of care for their financial advice. You don’t get a second chance to get retirement right.

So make sure that you help educate the women in your life (mothers, wives and daughters) about finances, as least enough so that they know who they can trust as a fiduciary.