Dear Mike: I've recently been through a divorce and it has certainly impacted my retirement prospects. What advice can you give me to help get my finances in order? Gail in Victoria
Within a marriage, a man and a woman's financial circumstances are generally equal. But if a divorce occurs, the women's situation statistically tends to be more challenging than that of her ex-spouse. And that's why, during this major life transition, you should meet with a financial adviser to go over your spending needs and cash flow, so that you know what you absolutely need today - and how you can plan for tomorrow. Before we get into some possible steps to take, let's look at some of the reasons women may fare worse than men, financially speaking, following a divorce:
Lower income: In many cases, divorce exacerbates a situation in which women were already trailing men in earnings. In fact, women still only earn 70.5 cents for each dollar earned by men.
Smaller retirement accounts: For example, in the U.S., the average balance on women's defined contribution plans is only 60 per cent of men's average balances, according to LIMRA, a financial services research organization.
Of course, 'averages' are just that - averages. But whether you recognize yourself in the above numbers or not, consider these suggestions:
? Create an emergency fund. Try to put three to six months worth of living expenses in a liquid account. Once you have established this fund, you won't have to dip into longterm investments to pay for unexpected costs, such as an expensive car repair, a new furnace or a large medical bill.
? Contribute as much as you can afford to your retirement accounts. Even if you will eventually receive some of your ex-spouse's retirement funds, you need to take full advantage of your own savings opportunities. If money is tight, contribute as much as you can to your RRSP or similar employer-sponsored retirement plan. At a minimum, put in enough to earn the employer's match, if one is offered.
? Rebalance your investment portfolio. If you are now investing for yourself, you will want to take a close look at your asset mix to make sure it is appropriate for your situation. For example, your risk tolerance may be quite different than that of your ex-spouse. So if you now have total control over an investment portfolio, you need to make sure it reflects your needs and preferences. Consequently, you may need to "rebalance" your holdings.
You may have a great deal of experience with investing and finances, but that doesn't mean you have to do everything on your own. As mentioned above, now is a good time to meet with a financial adviser. And if you don't have much experience in managing your finances, you may even find it helpful to work with a trust company, which can collaborate with your financial provider to manage your assets and also provide a variety of other functions, including bill payment and record keeping. A trust company's services can prove especially valuable to you and your family should you ever become incapacitated.
Unfortunately, a divorce may leave you feeling overwhelmed in many areas of your life. But by following the above suggestions, you can at least help keep your finances under control.
Mike Watkins, CFP, FMA, FCSI, CSWP
Watkins is a financial adviser with Edward Jones and author of the financial planning guide It's Only Money. Contact him at 250418-0114
