Planning for your future can be a challenge, especially when your focus and your funds are needed in the here and now. As important as it is to start planning for retirement at a young age, the National Institute on Retirement Security has found that a shocking 66% of millennials have nothing saved for the future.
Picking a financial planner can be a daunting task, and understanding the difference between an IRA, 401k or overfunded life insurance is complicated at best. Financial planners get a bad rap, selling what looks like snake oil and confusing products that don’t always translate into easy to access funds in case of an emergency.
With the wage gap and lack of female leadership in corporate America, women have been at a financial disadvantage for decades. This disadvantage ultimately results in a higher likelihood of experiencing poverty during retirement. On average, women live longer than men, and make a lower salary. Combined, these factors create a troubling scenario that needs to be addressed during the time of your highest earning potential, not after retirement.
Ellevest, a new financial planner specifically for woman, was created with the understanding that retirement planning must be customized for gender. Due to the pay gap, a woman will often have substantially less invested at retirement than a man in a similar career. Created by the former CEO of Merrill Lynch, Smith Barney and Citi Private, Ellevest founder Sallie Krawcheck set out to disrupt an industry dominated by men and level the playing field for female investors.
How it works
After completing a brief profile including your location, career path and current investments, Ellevest shows visually how your funds will grow between now and retirement, and provides recommendations for what should be invested to achieve your goals.
All accounts are based on goals, making Ellevest unique from other financial planning products and tuned in to how most women’s brains work. You can set a goal for a home purchase, college tuition, starting a business or just to build up an emergency fund.
Goal based investing is built with the intention of achieving a goal and as a result is unique from more traditional portfolio structures. Full details of the Ellevest portfolio strategy are outlined in the Ellevest Methodology. At a high level, Ellevest uses a combination of Mean Variance Optimization and Liability Driven Investing to select funds that will generate the maximum return for a specific goal while minimizing the likelihood of not meeting your goal. Traditional investing typically looks only at maximizing the return.
What about my 401k?
If you have a 401k, Ellevest takes those funds into account and will help you set goals accordingly. Unfortunately more and more companies have stopped offering 401k programs, leaving a vast majority of women (and men) without employer sponsored retirement. Data analyzed by the Pew Charitable Trust found that 41% of millennial do not have access to 401k’s or other forms of employer sponsored retirement planning. Women who stay at home or are a part of the freelancer economy may have even less access to retirement planning options.
Outside of an employer sponsored 401k, the best available options for retirement planning are IRA accounts. Each individual under the age of 50 is able to contribute $5,500 annually to an IRA. There are two kinds of IRA accounts available.
Traditional IRA:
- Contributions may be tax deductible
- Earnings grow tax-deferred
- A portion of withdrawals may be taxable
Roth IRA
- Pre tax income
- no age limits to open or contribute to the account
- Eligibility can be limited by income
- Contributions can not be deducted
Based on your financial situation, Ellevest recommends which kind of IRA is best for your needs.
Why Ellevest
At the end of the day, you should pick a financial planner that is right for your goals and lifestyle. With a focus specifically on the needs of women, Ellevest works to advocate for women’s financial rights by encouraging women to discuss finances with their networks, training young women to be comfortable talking about finances, working to close the wage gap and investing in companies that are women-run and diverse.
With easy to understand dashboards and full online access, Ellevest makes taking the plunge into investing in your future something that you can set up in just a few minutes. Ellevest will even give you $100 to get started!
No matter how you choose to plan your retirement, take the time today to set yourself up for a success in the future and set a good example for the young women around you.
