Financial advisors should take a hard look at the unsexy, underappreciated Individual Retirement Account as something other than what it has grown to be — that big rollover opportunity.
Not only can IRAs give financial standing to women of a certain demographic, by controlling money in their own name they’ll learn how to invest greater sums in the future. So says Marcia Mantell, a former Fidelity vice president of retirement and founder of Mantell Retirement Consulting, in an interview with ThinkAdvisor.
Baby boomer and millennial moms alike who left the labor force to raise children can benefit from opening an IRA. Indeed, many married or formerly married women reaching the point of retirement are shocked to find that reporting little or no income for 30 or 40 years has severely impacted their eligibility for Social Security benefits — all because they opted to be at-home moms.
Hence, Mantell, 55, who has trained financial advisors for more than 25 years, recommends that FAs take the initiative and suggest that, where appropriate, married clients move money from a joint taxable investment account to an IRA in the wife’s name.
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An important “hidden value” of the RIA is that it empowers women by way of ownership and control over money that they alone own, Mantell notes.
Though starting out small, IRAs often grow, with compounding, to six figures over decades, says Mantell, who develops retirement strategies for wirehouses, large RIAs, insurance companies and clearing firms. She is a frequent speaker at industry events and conferences, such as Pershing’s Insite.
ThinkAdvisor recently spoke with Mantell, author of “What’s the Deal with Retirement Planning for Women?” (People Tested Books 2015), on the phone from Plymouth, Massachusetts, where her consultancy is based. Mantell’s blog, BoomerRetirementBriefs.com, is directed at both advisors and consumers. Here are highlights from our interview:
THINKADVISOR: What’s one of your beefs about retirement planning for women?
MARCIA MANTELL: The big stat that floats around the industry is: About 90% of all women wind up being the sole controllers of the money. That’s great — but you need to be in the money game all the way along. And that comes with ownership, not a joint checking account. If you become sole owner of all that money at 85 but have never had money of your own, how are you supposed to make wise decisions?
Many women don’t realize till their mid-60s that they have no money of their own for retirement. What’s the solution?
I want financial advisors to start looking at empowering married women to have financial standing in the household. A really easy way is when the advisor is sitting across from Sally and Sam, and looking at their accounts — of which Sam has three in his name — they should say, “Sally, you have an investment account with Sam, but you’ve got nothing in your own name. Let’s remedy that. One easy way is to open a contributory IRA.”
How often do you think FAs say that?
Never, I would bet.
Many advisors claim they went into the business to help people. This is one way they can help women.
Yes, they should be encouraging female clients — the other half of a [couple] relationship — to have money of their own to make sure they’ve got some skin in the game. An IRA is a pretty low-risk investment to start out with. Advisors could help women by redirecting money from a joint taxable account into an IRA of which she is the owner. That brings freedom.
Is “women,” overall, a market segment?
In the industry, the “women’s segment” is painted very broadly — that is, we all have the same issue: “Women have money. They just need to learn to invest.” But the boomer women I talk to have missed Step One: They don’t have any money. They were at-home moms raising kids. Then, when they reached retirement age, they found they have no money in their name.
So is this issue just about boomer women who took on the traditional role of homemaker?
No. There’s a whole bunch of millennial moms that have stepped out of the work force to raise children. So the cycle continues. Is she planning for her future? One day she’ll be 65. Is she going to look at her contribution of raising children but have no money because it will all be in her husband’s name?
How popular are IRAs in general nowadays?
People aren’t opening and contributing to IRAs very much anymore. The whole IRA game is the rollover from an employer retirement plan, like a 401(k), where the husband is the sole owner because he’s the employee.
You believe, then, that IRAs are an effective solution for a certain segment of women?
Yes. Half the boomer women, for example, stayed home to raise kids; and suddenly they’re standing on that retirement ledge finding out they have no money in their name. It’s stunning. Also, there are women who are unhappy in their marriages and want to leave but can’t because of the same reason: What are they going to live on? These points of reality are tough to swallow.
Another reality is that many financial advisors don’t encourage clients to open IRAs because they’re not very profitable.
Right, they’re low balance. Unless the advisor has a big relationship with the household, or there’s another bucket of money, it’s kind of a nuisance: “This dinky little $5,500 account.” But that’s being very short-sighted.
You need to look at the whole opportunity. They’re not always low balance. If you contribute every year for 10 years, it’s a $100,000 account.
Still, advisors may think that a woman’s having no money of her own isn’t a concern of theirs, or they dismiss it as not mattering.
It does matter. It doesn’t matter by traditional measures, but that’s the wrong metric. This isn’t helping a client to be financially powerful and independent. Advisors can help these women get a start — even if they’re 60 years old. Look beyond the big rollover.
You’ve said that women can have a rude awakening when they’re ready to receive Social Security.
When it’s time to file for benefits, many women get their statement, and it’s all zeroes. Sure, you get half your spouse’s benefits. But after I’ve given talks about Society Security, women come up to me saying, “I get only half! What is that!” Traditional homemakers certainly contributed way more than half running the household than their husbands did.
So you recommend that a woman open an IRA because, by its nature, the account would be in her name only, and she’d be the sole owner?
Yes. It gives her some stake in the financial side of the household. You can put in only $5,500 [for the total year], or, with the $1,000 catch-up, $6,500 if you’re 50 or older. The write-off is so small; it’s not going to make or break someone’s tax return.
What’s another hidden value of IRAs?
She gets to name the beneficiary of her choice. It doesn’t have to be her spouse; it might be a child or a grandchild or a charity. That gives the woman some financial power. With her husband’s big rollover, legally she has no say as to who the beneficiary is.
Is a Roth IRA appropriate for the women we’re discussing?
A Roth is great as long as you meet income eligibility. A Roth is a terrific way to save for retirement and to get tax benefits.
Should a woman open an IRA as soon as she starts working?
Yes. Even when a teen — earning W2 or 1099 wages — because it can grow on a tax-favored basis all the way to age 70-1/2 in a traditional IRA, at which point you must take required minimum distributions. Starting an IRA early is a tremendous gift to your children long after you’re gone because it compounds over decades. It’s a huge win for the future.
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