My advice to mid-career women (mid-30s to 50s)

This is the prevailing pattern I’ve noticed with successful, mid-career women: having success doesn’t necessarily mean feeling successful.  Outwardly, they have achieved a lot: higher education; bigger titles; higher pay; partner(s); home(s); kids (possibly); pets (definitely).  Inwardly, however, the picture is more mixed and often more conflicted: feeling like a fraud; feeling taken advantaged of personally/professionally/financially; feeling overextended; feeling stressed, anxious, exhausted, disoriented, disconnected, listless and eventually loss. Moreover, their “success” doesn’t lessen their caretaking responsibilities.  If anything, it increases and accelerates them. Focused on caring for others, these women often see self-care as an after-thought.  How to invert this paradigm from the admirable, but destructive, “others before self” to the more sustainable and healthier “self before others”?      

Take care of yourself – first 

Viewed as natural caretakers, it may take time, awareness and effort for successful, mid-career women to rewrite the socially and biologically ingrained script, which calls for putting others first. Personally, what I’ve noticed is that when I start to care for myself in one area, I start to care for myself in other areas as well.  Since I’m a financial planner, I’ll focus on ways you can care for yourself financially.  Make it a default by automating your saving/investing and, consequently, your spending (leftover income).  For illustration purpose, let’s assume that you’re 45-years-old and earn $150,000/yr (base + bonus).  Here’s my recommendation on how you should prioritize allocating your income:        

·      Emergency Fund:  Put away about 12 months’ worth of living expenses in a high-yield, FDIC-insured, online savings account: Ally Bank (0.50%), Capital One 360 (0.40%) and Alliant Credit Union (0.60%).  Key benefits:  Have cash readily available to address emergencies.  Eliminate/minimize the need to borrow at higher interest rate (e.g., credit cards).  Key drawbacks:  Currently, cash is an unproductive asset as it yields a negative return (0.5%) when factoring inflation (5-7%).            

·      Your Employer Retirement Plan (401k likely):  Max out your company’s traditional 401k (annual limit for 2022 = $20,500 if under age 50).  Key benefits: Save thousands of dollars on income tax.  Accelerate compounding of retirement savings by deferring income and capital gains tax.  Catch up on retirement savings more quickly and effectively.  Key drawbacks:  You can’t withdraw funds until after age 59 ½, otherwise you’ll be penalized.  You have to make Required Minimum Distribution (RMD) at age 72 or 73 (potentially); withdrawals are taxed as ordinary income.      

·      Roth IRA:  Max out your Roth IRA via an individual account.  Key benefits:  Increase your retirement annual contribution limit (if you’re under age 50) from $20,500 (traditional 401k) to $26,500 (traditional 401k + Roth IRA).  Build up assets in tax-free account (Roth IRA) for greater flexibility in tax management/minimization in retirement.  Assets can compound tax-free for decades after age 72 or 73 as there’s no RMD.  Key drawbacks:  You can’t withdraw funds until after age 59 ½.  Annual contribution amount ($6,000) is low relative to traditional 401k ($20,500). 

·      Disability Insurance: If you’ve invested a great deal of time/money in acquiring specialized skills and want to catch up on retirement savings, protect your earnings potential with long-term disability insurance.  Key things to look for in either a group or private policy: “own occupation”; long-term (benefit payment until age 65, when Medicare kicks in); benefit (preferably $10,000-$20,000 more than your annual living expenses so you have extra to invest); elimination period (5-6 months).  Key benefit:  Protect one of your greatest assets (your earnings potential) as you build up other sources of income (via investments).  Key drawbacks:  If your employer pays for policy premium, benefits will be taxed as ordinary income.  Premium for a private policy typically costs 2-3% of annual income.    

·      Prenup: Thinking about (re)marriage, but don’t want to jeopardize your finances from the possible fallouts of a divorce?  Consider a prenup, especially if you’re financially better off than your partner and live in a community state (AZ, CA, ID, LA, NV, NM, TX, WA and WI) where all income earned and assets acquired during the marriage, regardless of who’d earned or acquired them, are considered equally owned (50/50) by both partners.  Consequently, they will be divided equally during a divorce.  Key benefits:  By outlining ownership of assets before, during and after marriage, a prenup helps circumvent a messy divorce.  This can provide greater peace of mind for one, if not both, partners.  Key drawbacks:  Asking your partner for a prenup could be awkward, if not offensive.  So be prepared to “talk about it.”  A prenup may make marriage feel more like a business transaction rather than a life commitment.      

Take care of others – second 

·      Term Life Insurance: If you have dependents (e.g., minors, elderly parents) and sizeable debts, consider term life insurance via employer or private policy.  How much life insurance do you need?  Calculate your net worth (assets – liabilities).  Does your net worth equal or exceed all current and future obligations/expenses (to the best of your knowledge) should you die?  If yes, then you probably don’t need life insurance.  If no, then consider making up the difference with term life insurance.  Key benefits:  Term life insurance is easy to understand, comparatively cheap and accessible.  You pay a fixed (annual) premium for a fixed cash benefit should you die.  Key drawback:  Since term life is a pay-as-you-go policy, you’ll lose your premiums in exchange for a cash benefit should you die.       

·      Will (and Trust):  If you have dependents (minors and elderly parents), create a will and possibly a trust, if your net worth is fairly high ($2 million plus).  While a will outlines your wishes and how assets should be dispensed soon after you die, a trust helps ensure your wishes and assets are dispensed as you wish over a longer period after you die.  Key benefits:  Legal documents help expedite the disbursement of assets and payment of remaining liabilities.  (Save your heirs the legal headache and hassle.)  A trust helps you avoid the often lengthy and costly probate process.  Key drawbacks:  A will typically have a short(er) shelf-life; it’s usually most impactful soon after your death.  A trust is more sophisticated and complex.  Thus, it’s costlier to create and maintain.  

·      College Savings – 529 and Brokerage Account:  To help your children pay for college and get a head-start in life, consider 529 and a brokerage account (possibly).  Key benefits: A 529 helps you save on taxes as contributions are tax deductible (in some states); assets grow tax deferred; withdrawals for qualified education expenses are tax-free.  A brokerage account is a good supplemental education account.  Unlike a 529, it offers greater flexibility in where, when and how funds are used.  Key drawbacks: A 529 has a lot of contribution and withdrawal rules, which often vary from state to state.  Meanwhile, a brokerage account is a taxable account and, thus, offers fewer tax benefits than a 529.    

Final thoughts…

Oftentimes, for stressed, successful mid-career women, grace often comes in unexpected forms: burnout, nervous breakdown, disability, cancer, divorce, job loss. While our mind can play mental gymnastics and justify our unhealthy decisions, our body speaks simply, but it speaks the truth.  Pain can be highly instructive.  If we still ourselves long enough to hear and, thereby, heed its warnings, then we can sidestep a lot of pain by (re)learning to put ourselves first.  If we don’t, then we will likely experience increasing pain until we are forced to stop, reflect and change.  By no means am I saying that we should not care for others.  Rather, it cannot come at the expense of caring for ourselves.  Only when we truly care for ourselves can we truly care for others.  The latter is merely the extension of the former.