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For women, retirement can be a serious challenge

As financial advisors look back at their business over the past year, many will take note of the larger number of women among their clients.

This should not be surprising, since the number of wealthy women in the United States is rising twice as fast as the number of wealthy men. Experts estimate that by 2030, women will control as much as two-thirds of the nation's wealth.

To that point, 45 percent of American millionaires today are women, and they control $11.2 trillion, or 39 percent, of the country's investable assets. There are 9.1 million women-owned businesses in the United States, generating nearly $1.4 trillion in revenue, and women represent 51 percent of those in professional and technical operations.

These numbers all point to women's rising financial clout. Nearly half of women — 44 percent — are now the primary breadwinners in their households, and 27 percent of married women say they "take control" of financial and retirement planning.

Financial advisor
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However, women continue to face significant economic challenges, most notably with the pay gap: In 2015, women earned just 80 percent of what men were paid. Earning less leads to a lower level of future Social Security benefits. In 2012, women over 65 received $12,520 in average Social Security income compared to $16,398 for men.

Women also spend fewer years in the workforce because they are more likely to stay home to care for young children. Consequently, they are less likely to qualify for company-sponsored plans and are less likely to receive the full benefits of those plans.

Of the 63 million wage-earning and salaried women age 21 to 64 working in the United States, only 45 percent participate in a retirement plan, and they have 50 percent less in their retirement savings accounts than men. Yet as their life expectancy rises, women need more retirement funds. Those who reached age 65 in 2012 are expected to live, on average, an additional 20.5 years, and widows accounted for 34 percent of all older women in 2015.

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These facts should encourage advisors to enhance their retirement-planning services for women clients. The good news is, many women seem to be natural investors. They set goals, do their homework, ask for help and focus on the long term. Advisors can best help them prepare for retirement by providing these clear strategies.

Organization/budgeting: Advisors should provide women clients with the tools to get their financial lives organized. This can begin with a file system to collect important financial documents, followed by a budget that clarifies how they will allocate funds to cover expenses. A file system should include folders, either physical or digital, organized by the following categories: insurance policies; tax returns; retirement statements; banking records, mortgages and loans; investment records and legal documents.

To create a budget, clients can start by establishing a benchmark of their current expenses. Advisors need to urge them to prioritize expenses into needs, wants and wishes. Develop a savings plan, perhaps categorized for various expenses, along with a fund of six months' to a year's worth of expenses for emergency situations.

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Credit/debt: Additionally, savvy advisors should offer clients guidance on how to get a grip on what they owe. Explain the importance of checking FICO credit scores regularly, and offer help on how to improve their credit scores. Provide strategies, including prioritizing payments on high balances or maxed-out cards and staying current with payments, possibly by setting up automatic payments and not opening new credit cards or loans in a short period of time.

Retirement: Many of these investors may need help to set up and fund tax-advantaged retirement plans. These can include an employer-sponsored 401(k) plan, with annual contributions of up to $18,000; make sure they capture any matching employer contributions. Anyone who has earned income can set up an individual retirement account, with maximum contributions of $5,500 per year.

Expertise: It's essential to assist clients to develop resources to help with navigating life's challenges. Just as your client has a network of medical specialists, she should have a network of financial professionals as well, including a certified public accountant and an estate/trust attorney.

"Women need more retirement funds. Those who reached age 65 in 2012 are expected to live, on average, an additional 20.5 years."

Insurance: Discuss the importance of having adequate life and disability insurance. Life insurance should ideally subsidize 70 percent of the wage earner's income for seven years, should the wage earner die. However, the chance of becoming disabled between the ages of 25 and 65 is much higher than the chances of dying, but most company-sponsored disability policies cover only 60 percent of income.

Education: Help clients save for their children's education. Tax-advantaged 529 college savings plans are designed for college-related expenses. Other strategies to explore include custodial accounts and Roth IRAs.

Financial advisors who offer these kinds of strategies to women clients enable them to take charge of their finances and set a course for a more secure retirement. This in turn allows advisors to build their business by serving as the trusted counselor to their clients.

— By Matt Sommer, vice president/director, Retirement Strategy Group at Janus Capital Group