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Creating Long-Term Financial Security

Woman stepping on steps of money

As published in the September/October issue of BRAVA Magazine.

BRAVA asked Summit Credit Union’s financial experts what strategies they recommend to create more financial security, not just for today’s needs but also years into the future. Summit CEO and President Kim Sponem says Summit’s passionate about helping all members build wealth to make that financial security happen — but specifically women, who generally have less saved in retirement than men.

Building wealth makes it easier to pay bills and cover needs and goals at every stage of life, and it’s especially critical to setting up a stress- free, confident retirement. But women face unique challenges on their path to building wealth for financial security. On average, women are likely to live longer than men, and save less and earn less over their lifetimes. Women also face low representation in higher-paying positions and fields, difficulty returning to work in similar positions after time away for caregiving, and higher prices for products marketed to women.

All of this adds up over time. The average lifetime earnings disparity for women translates to about $500,000 in lost income over the course of a 40-year career,1 which can mean as much as $1.6 million less in retirement savings.2 And that impact is even more significant for women of color. The resulting “retirement savings gap” is a big one, with women 43% more likely to live in poverty in retirement3 and less likely to have any money saved when they do retire.4

Summit is working to educate and empower women to build wealth and prepare for retirement, creating more stability and economic strength for everyone.
— Kim Sponem

Understanding the factors contributing to women earning and saving less over their lifetime can help address them, Sponem says. She shares these tips women can take to build wealth and security:

Make the most of tax-advantaged savings options. Take full advantage of any 401(k) match by your employer and set up automatic contributions to your retirement plan and an Individual Retirement Account (IRA).

Position yourself for greater income. Look at how you may be able to negotiate for a better salary or retool your skills for a higher-paying position or field. If you’re a stay-at- home parent, talk about ways to save specifically for your future.

Spend wisely. In your daily life, try to find less costly options for basic necessities like shampoo, deodorant or other products that tend to cost 13% more for women (known as the “Pink Tax”).

When ready, meet with a financial expert. Empower yourself with knowledge and take action on what you learn along the way — even if it’s just a step at a time.

One of the best ways to build wealth for retirement is to save enough money so you can start regularly investing some of it for the long term.

Read on to learn more about how you can start building wealth and achieve more financial comfort now, as well as a joy-filled retirement.

Building Wealth Through Homeownership

Owning a home is one of the most important ways for anyone to build long-term wealth, which ultimately also creates peace of mind later. It can mean having a paid-off place to live in during retirement years, or building equity that provides great profit when you sell the home — extra money that can be used to help pay for more convenient living arrangements for your changing priorities.

Women have different needs when preparing for homeownership. According to the National Association of Realtors, women typically buy a home as a first-time buyer with $13,000 less in annual household income than single men.5

When you’re considering buying your first home, the first step is meeting with a mortgage loan officer to discuss your credit history, income and assets, and down payment.

Claudine Carvalho, a Summit mortgage loan officer, believes building wealth through homeownership is extremely important — but she wants Summit members to be able to maintain their lifestyle long after they move into their house.

“The first thing we do is review your monthly budget and discuss what kind of safety net is in place for things like home repairs,” Carvalho says. “So many people we work with feel like there are too many obstacles in front of them to even start dreaming about owning a home.”

We work together to build a roadmap. You won’t achieve your vision overnight, but with the right money habits, you’ll get a few steps closer to owning a house each day — and it’ll feel amazing.
— Claudine Carvalho

Buying a home is a major life change, but it doesn’t have to be stressful. Carvalho says experts like Summit’s mortgage loan officers can answer questions and walk you step by step through the process.

A word on credit. The higher your credit score, the lower your interest rates. If your credit isn’t where you want it to be, Summit will help you make a plan to improve it and to find a balance between reducing debt and saving for a down payment.

The right loan for you. Carvalho says people are most familiar with a 30-year fixed mortgage, but that’s not the only option — and the down payment you need is tied to the loan you choose. A mortgage loan officer can look at income and expenses to help you determine the loan options, rates and terms that fit you best.

Understanding all the costs. Your total monthly mortgage payment is made up of principal, interest, taxes and insurance — known as PITI. It’s important to add them all up to figure out your monthly payments, noting that taxes and insurance will likely go up yearly. Don’t forget to factor in other homeownership costs, Carvalho says, like appliances and maintenance to your roof, windows and heating, ventilation and air conditioning, or other updates.

The lowdown on down payments. You could make your new home a reality with as little as a 3% down payment. On the other hand, a higher down payment has advantages, such
as paying less in private mortgage insurance (PMI). Also ask if you’re eligible for programs that provide assistance with down payments and closing costs for first-time homebuyers who meet certain income requirements.

Building Wealth Through Retirement Planning

Whether it’s in the back of your mind or right around the corner, planning for retirement can feel like a tall order. Too often, people put off planning for retirement because they’re embarrassed about their lack of progress. But as Summit’s Vice President of Wealth Management, Jody Brown, explains, there’s no need to dwell, apologize or be ashamed of your financial situation.

Instead of apologizing, give yourself permission to be imperfect! Once you get past the ‘woulda, coulda, shouldas,’ you can turn the page and start planning for the future.
— Jody Brown

Here are a few simple steps to help build momentum toward reaching your retirement goals:

Find out how much you need. According to the Employee Benefit Research Institute, only 48% of people know their retirement savings needs — and those who determine how much they need end up saving more. Take advantage of an IRA on top of your company’s 401(k). Both Roth and Traditional IRAs offer tax-free growth of assets.

Keep your investments balanced. Diversifying your investments and managing risk goes a long way to ensure the security of your retirement funds. Make sure the risk you’re taking on and the accounts you’re using are aligned with your target retirement date.

Take advantage of any available matching funds from your employer. Put in at least enough to get the full employer match — you don’t want to leave “free” money on the table. Then, try to boost the amount you save each year, or whenever you get a salary bump. You won’t miss the money at the time, and you’ll be glad you did when retirement comes.

Brown says to surround yourself with experts — whether it’s friends, family or financial advisors — who can answer questions in a judgment- free zone, bounce around ideas and help you make a plan of action you’re comfortable with. She also suggests taking advantage of Summit’s free online resources, including investing and wealth management webinars, to get credible info and gain confidence.

Building Wealth Through Entrepreneurship

More women are starting small businesses than ever before. Since the pandemic, women have started about half of the country’s new small businesses, up significantly from 30% prior to the pandemic.6

While most new business owners get their main funding from personal savings, loans and private investments are important secondary sources. Women are generally less likely than men to borrow to both start and grow a small business, and instead may tap into retirement and other personal savings.

Since personal and business finances have an impact on each other, confidence is key in both spaces, according to Julie Spitzack, vice president of business services at Summit.

Whether you’re struggling with insecurity about your financial standing or imposter syndrome (thinking your success is from luck vs. talent), it helps to start a dialogue so we understand what you want to do and can help you figure out how to get there.
— Julie Spitzack

If you’re contemplating going out on your own, Spitzack and her team can help you review your budget and business plan “roadmaps” and advise on which lending products make sense for your stage of the journey.

Where to start? “Review your credit history and score,” Spitzack advises. “Many business owners we work with worry that taking out a business loan would be impossible, but we’re always happy to discuss your history, your score and strategies you can use to improve it.”

After that, solidify your business plan, which builds confidence in knowing what steps you need to take to launch your business. Further, the planning and research that go into compiling your plan will help lead you down the road to success. You can find helpful resources and programs at sbdc.wisc.edu and sba.gov.

Building Wealth Through Increasing Earning Power

Even a small boost in earnings at the beginning of a career compounds over time to have significant impact on your wealth. As an example, an $11,000 gap in starting salary would be a difference of more than $800,000 over a 40-year career, assuming a 3% annual raise, says Tara Klun, Summit’s vice president of human resources. And that doesn’t even account for the bonuses and retirement fund matches that are tied to a salary.

It’s vital that women prepare themselves for success from day one.
— Tara Klun

UNDERSTAND YOUR VALUE AS AN EMPLOYEE

Klun says to go into an interview knowing what the role entails (don’t worry if you don’t meet every single requirement).

Do research beforehand to learn pay levels for similar positions and ask people in your network in similar roles to share their salary information.

During an interview, ask for the salary range of the position but avoid disclosing current pay. Instead, focus on how your skill sets and experiences enhance the position’s expectations and duties.

Summit doesn’t ask for salary history or negotiate starting pay, Klun says, to avoid unintentionally continuing pay differences that may not have been based on experience, education or performance. Summit also has pay practices in place to ensure fair pay for similar work, including annual assessments and reviews of compensation within each pay level.

ACCOUNT FOR A STAY- AT-HOME PARENT’S RETIREMENT

Women are more likely than men to leave the workforce or go part-time for caregiving. Amy Crowe, a financial education specialist with Summit, says partners often weigh what they can save in daycare costs against what they may lose in income. But the impact on the stay-at-home parent’s future retirement savings and overall financial wellness is important, too.

Planning for both spouses’ retirement now impacts the whole family’s ability to build wealth, security and peace of mind.
— Amy Crowe

Crowe says it’s critical not to tap into existing retirement savings to supplement the income change, so as not to deplete resources or trigger taxes and penalties. She encourages partners to have open conversations about how to save for the stay-at-home parent’s future, starting with research on what they’ll need long-term.

She suggests setting up a free, secure “My Social Security” account at SSA.gov to estimate future benefits. Use tools like Summit’s free budget worksheet to see your savings “wiggle room” and an interest rate calculator to gauge returns in today’s high-rate environment.

A financial expert can help find the best ways to set money aside, whether that’s an individual retirement account (IRA), a certificate of deposit, money market account or other investment opportunities. Remember to roll over any retirement account the stay-at- home parent has at a previous employer.

Schedule an appointment online or give Summit a call to get started on your short- and long-term financial security.

 


 

Sources:
1 National Women’s Law Center; U.S. Bureau of Labor Statistics
2 Center for American Progress
3 U.S. Department of Labor
4 U.S. Census Bureau
5 National Association of Realtors Celebrating the Single Women Home Buyers for Galentine’s Day, 2023
6 The Business Journals 47% of new businesses are started by women. Men still get the capital, 2023

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