Long Term Savings for One
A few weeks ago, we looked at how a money coach may be able to help you during divorce to figure out how to support two households instead of one and your day-to-day finance. Today, Joëlle Hall, an Investment Advisor, shares how Investment Advisors can help you with accumulating the capital you need to maintain your desired lifestyle throughout your lifetime.
Saving for retirement is a major consideration for all Canadians but especially for women after divorce.
As is well documented, women, on the whole, still earn less than men, so that both their capacity to save and their future entitlement to CPP benefits will be lower while their life expectancy is greater! Coupled with these realities, women often have to support a larger proportion of expenses after a divorce because while divorce does result in reduced housing expenses since the household is now split, rarely are these expenses reduced by half. Women therefore must take a long-term, self-interested view to save enough when starting with less capital and/or income.
Negotiating Your Divorce Settlement
The Family Home
Women often have an emotional attachment to the family home, especially when children are involved. Women may try and avoid a further upheaval to the family by maintain the family home. While the divorce agreement reflecting such an arrangement may result in a fair share of the total assets, the nature of the assets received is different and can have an impact on the availability of income from assets in the long term. An investment advisor can help you assess whether you have adequate capital to fund your retirement lifestyle while maintaining the family home.
Retirement Capital vs. Retirement Income
Focusing solely on obtaining the fair share retirement capital - assets that will fund retirement - rather than on obtaining the fair share of retirement income can put women at a disadvantage. Working with an investment advisor can help you determine a fair or proportionate share of retirement income based on age, health, life expectancy and may lead to a different result than proportionate share of retirement capital.
Once the funding for a fair retirement income is determined, it is important to be aware that funds in an RRSP or RRIF can be transferred on a tax-deferred basis, under certain conditions. Locked-in RRSP assets can also be transferred, but remain locked-in for the spouse to whom they are transferred.
Retirement Fund vs. Education Fund
If you have to choose between funding your children’s post-secondary education and your retirement fund, choose your own retirement fund. Children have many more years to pay off their student debt than you will to rebuild your retirement nest egg. And, if you don’t have enough to sustain yourself in retirement, you may be shifting the burden to your children anyway. Though the result may be the similar, the psychology of the circumstances will be very different and likely much less desirable.
Support Payments vs. Retirement Assets
Spousal support and child support won’t last forever and while child support is non-taxable, spousal support payments are taxable to the recipient. Not only are these income streams short term, if your former spouse is not able to work and goes on disability, this stream could be reduced or disappear.
If you can manage on your income, accessing capital to fund your potentially weaker starting point and greater retirement income needs may be beneficial. As we noted, RRSPs and RRIFs may be transferred on a tax-deferred basis and, properly managed, will continue to appreciate and provide income through retirement.
Facing the Future
Long Term Care Insurance
Since women typically live longer than men and require care for a longer period, this type of insurance can be more expensive for women but may be a higher priority post-divorce for women on their own.
If you and your spouse share a financial and investment advisor prior to divorce, find yourself a new advisor, who will bring fresh perspective to your situation and who will be free of the potentially conflicting interests of serving both you and your former spouse.
Meet Joëlle Hall
Joëlle is an Investment Advisor with RBC Dominion Securities in Ottawa, Ontario. She is a Chartered Professional Accountant and holds an MBA as well as her FPCS Level 1® certification in financial planning. Joëlle helps professionals and business owners answer the question “Will I have enough?” Drawing on her breadth of tax and accounting knowledge, she applies a comprehensive wealth management approach to develop financial and investment strategies that contemplate her client’s broad financial, retirement and tax planning needs. Want to know more? Learn about Joëlle on her site on her site or like her on Facebook.