SUDDENLY SINGLE….
Becoming a single woman-Would you be prepared?
Becoming single, regardless of how or when it happens is an emotional experience. It can also be a financial burden—especially during your retirement years. In many households, only one spouse handles the finances, retirement planning, investing and legal matters. If you are not that spouse and something happens, you may feel overwhelmed about what steps you should be taking. Much of this stress is due to fear of the unknown. So what do you do about it?
Actively Manage and Plan Your Financial Future
While financial matters and budgeting may be of little interest to you, managing this component of your wellbeing can be compared to managing your health. While I am not the least inclined medically, I meet with my physician annually to monitor and review my health. My vital statistics and blood work are updated to ensure there are no obvious risks that need to be mitigated. My diet and exercise habits are discussed to ensure I am acting in the best interest of my current and future health. I have the opportunity to discuss any changes that my body may be undergoing as I age and ask questions about these changes. The same stewardship should be applied to your financial health. When there are meetings with your financial planner or lawyer, make sure you are present and involved in the discussions. While you may fully trust your spouse to handle your finances, you still need to know what’s going on so if you are left alone, you can continue with those plans without feeling overwhelmed or confused.
Make sure you have a good understanding of your overall financial situation, including the amount and location of your assets, mortgage balance(s), credit card debt, loans and car leases. Be aware of what your assets and liabilities consist of so you can monitor your net worth.
Calculate Your Potential Income and Expenses
Probably the most important part of contingent planning for your retirement years is figuring out how to live on just one income instead of two. For many women, their household income will decrease significantly after the end of their marriage, whether through death or divorce.
Knowing what income you will have available is crucial to understanding your financial future. By identifying your sources of income, including the amount, timing and longevity of your cash inflows you can determine if this will be sufficient to maintain your future lifestyle. These sources include pension income, CPP and OAS, as well as income from your investments.
Planning for life if you survive your spouse is financially easier than contingencies for a late divorce. In a divorce, you are often dividing most of your assets, including your home, and then determining how best to live off your portion. Meanwhile, a widow still has the use of most, if not all, of their combined assets and potential survivor pension benefits.
A key piece of information is what income you will still have available to you in either situation. You can easily calculate your survivor income and government benefits if you are widowed, but income for a potentialdivorceeit is more complicated. While it is not pleasant to think about, it is usually a relief to understand what your financial picture will look like if such an event occurs.
Your investment advisor and qualified financial plannercan assist you to determine how much income you can generate from your remaining retirement and other assets by preparing a cash flow projection. This will show a year by year analysis of your cash flow taking into account the assumptions specific to your circumstances.
Create a Budget
Once you have a better idea of your potential income, compare that to your expenses. Create a budgetand evaluate if you need to make adjustments. This exercise encourages you to figure out what is most important to you and what you could live without.
One way to make sure that you will still be able to meet monthly obligations if you are single in retirement is to have a plan in place to pay off large debts before retirement. If items that make up most of your monthly expenses are paid off, that will free up your budget each month and make it easier to pay for your groceries, medications and other recurring household expenses.
Don’t forget to consider your health insurance benefits and potential costs if you are not covered through a program. This can be a significant expense if you do not already have employer-provided coverage.
Consider Your Health
Statistically women live longer than men and also outnumber them in assisted living facilities.Our healthcare system in Canada, while very good, does not covermany costs of long-term care,making it an expense that can exhaust your financial resources and jeopardize your financial well-being in retirement.
Consider what the impact would be if you were suddenly faced with additional monthly expenses of $4,000 or more. How would that impact the ability of your assets and income to sustain those costs for any extended period?
Whether your goal is to protect your assets for your heirs or have some control over how and where you receive care, you may want to consider looking long-term care insurance.
Have an Emergency Fund
No matter what age you are, you should have an emergency source of funds, usually 3-6 months’ worth of expenses. An unused but available line of credit, or your TFSA account are a couple of options that can satisfy this requirement. Your emergency fund is particularly important during your retirement years and is one of the fundamentals of a solid financial plan. Having available cash that is readily accessible can give you the necessary time to sort through your finances and make important decisions without feeling pressured, or relying on credit cards.
Understanding your financial situation will give you a sense of control over your life. If you would like assistance in understanding your investments, creating a budget or projecting your cash flow,we are here to help.