Ralph Bovitz, CPA, PFS

Financial Planning
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For Women Attorneys Only

By Ralph Bovitz, CPA, PFS

         Women attorneys must be financially independent.  Married or not, women attorneys must be prepared for the full range of financial possibilities.  Consider those who are financially dependent upon you – children, aging parents and in-laws, should your husband die or become disabled.  Thus, women should be sure to have disability insurance for themselves, if they are single or single mothers and working.  The likelihood of becoming disabled is statistically more likely than death.  For married women not currently practicing law, be sure your husband has adequate disability insurance, since the same statistic holds for him, that disability is more likely than death.  A disability insurance premium, to cover the tasks an attorney cannot perform, is usually expensive and often difficult to obtain.  But, efforts should be made to obtain own-occupation disability insurance.  You may be forced to take alternative employment to obtain benefits, if the policy is not own-occupation.  Disability benefits are usually pegged to about two-thirds of your earned income; when you pay the premiums, the benefits are tax-free.


Single women attorneys, having no dependents, may not need life insurance. Attorneys who are single-mothers or have financial responsibilities for parents, can get the most life insurance for the least cost by buying term insurance.  Term insurance can be purchased for a specified period of time, or term, at a fixed and surprisingly low premium.  The higher premiums for non-term policies, like whole life, take the extra premium and invest it to make up cash values.  Substantially more insurance (death benefit) is realized from a term insurance policy than a whole life policy, for the same premium.  Life insurance should be used to provide the money to meet the financial goals you have for your family and the responsibilities you have to your family. As a rule of thumb, an attorney might buy a term policy for about 10-20 times their annual earned income.  This will provide a pot of money that, when invested in savings accounts or high-grade bond funds, should produce an income stream that will help replace the earnings lost due to your (or your husband’s) untimely death.  You want to purchase a term policy for a period of time that will produce an income stream until your youngest child is at least 18.  If you are not practicing law and staying home with the children, your untimely death may require day-care for the little ones. The cost of such services would dictate the amount of term insurance on your life, necessary to produce an income stream to meet those added costs


While both men and women must save for retirement, on average, women live longer than men.  Women, sometimes earning less than men, have the dual problem of needing to save more out of a smaller income, to finance their longer life expectancy.  An underlying cause of financial insecurity for women may be shorter job tenure, i.e. taking time out to have and raise children or caring for elderly parents.  Shorter job tenure affects pension buildup, due to a loss of vesting in the pension or limited contributions to a 401 (k) retirement plan.  To remain flexible in their family responsibilities, women attorneys sometimes work for smaller firms, which often do not have retirement plans, like 401 (k).  Male attorneys, on the other hand, usually approach employment with an expectation of employer-provided retirement plans, “or I am not going to work there”.  In addition, women have historically relied upon men for financial support, causing a belief that they cannot handle money competently. Therefore, many women worry about being impoverished in old age and rightfully so.


For many women, meeting immediate goals, like the children’s education and a home are typical.  Thus, women are often more concerned about temporary investment losses, due to their near-term goals.  Near-term financial goals are generally defined as materializing in five years or less.  That’s why funds needed in the near-term should be conservatively invested, such as in savings and money market accounts or in short-term United States Treasury securities; funds needed to meet immediate goals is not the time to invest in the stock market.


Women often take too little risk in their retirement investments, by investing in savings accounts and not in stocks or stock mutual funds.  Taking too little risk means failing to beat inflation, due to lower investment returns characteristic of bank accounts.  Since no one can accurately or consistently predict the direction of the stock market, we need to look at market history.  Yes, the market is down today, because of September 11, for example.  However, it was also down after World War II started, after President Kennedy was assassinated, and after the Gulf War started.  However, despite all of these calamities, the market recovered.  You can get into the stock market by buying a total stock market index fund.  Such a fund will expose your investments to the market as a whole and the annul management fees for such funds are quite low.  Thus money needed for near-term goals should be in conservative investments, like bank accounts and US Government securities.  Funds needed for retirement should be in the stock market, which has traditionally returned more than banks, over long periods.


Generation-X women have been found to have the following financial lifestyle.  You live from paycheck to paycheck. You have substantial credit card debt. You don’t participate in your employer’s retirement plan.  You tend to spend and not save, either in an employer provided retirement plan, your own individual retirement account (IRA) or in taxable investment accounts.


Less than half of Generation-Xers believe the best way to create long-term financial security is through investments in equities, stocks and stock mutual funds.  Yet, historically, equities have proven to be the correct route to financial security.  More than 50% of Gen-Xers believe savings accounts, money market accounts and certificates-of-deposit (CDs) will result in financial security.  Historically, this has proven not to be the case, due to inflation eroding buying power. Savings accounts and bonds have a place in your portfolio but so do stocks, to provide growth in your retirement portfolio and minimize the adverse effects of inflation.


Women attorneys need to become acquainted with investment terminology.  One study found that women are often unfamiliar with financial terminology.  Knowing many of the investment buzz words will enable you to put brokers and financial planners on their toes when you speak to them. Let’s test your familiarity with some investment principles: 


The benefit of your retirement account is tax deferral; your money is allowed to grow year-after-year without payment of income taxes on the growth or on the income the account earns, until you make withdrawals from the account at retirement.  And, there are no taxes to pay on retirement withdrawals from a Roth Individual Retirement Account.


Compounding is earning money on money.  Thus, a 25-year-old attorney, making an annual retirement account investment of $1,000, that earns 8% per year, will have nearly $280,000, at age 65.  If you wait until you are 35 before you start saving, you would have to save over $2,250 a year, to accumulate nearly $280,000, by age 65.  This is a classic example of compounding; less money can grow into more money, the longer you invest it!


Diversification.  This means not putting all of your money in any one type of investment, such as everything in big companies, small companies, savings accounts, bonds or real estate.   It also means not putting all of your money into any one industry, company or country.  Thus, an investment in Ford Motor is the same as buying General Motors stock, while buying shares in Disney, instead of General Motors, is not. 


Not all women act the same when it comes to finances.  Nevertheless, recognizing that your gender may predispose you to certain attitudes and behavior should help you overcome those that may damage your financial planning efforts.
















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