We are going to discuss a number of important concepts over the next few articles and each and every one of them can effect your financial well being today and long into your future.
I will be discussing
- Financial issues unique to women
- Building wealth
- Protecting you, your wealth and the people you care about
- Living off of your wealth
- Your legacy
- The plan for your success
According to 2006 Canada Census:
Women have a life expectancy 4.8 years longer than men – that’s stated in the census as 82.5 years for women vs. only 77.7 years for men.
But just the difference in life expectancy doesn’t tell the whole story. Take a look at this…
75% of men over 80 have a spouse or partner and 66% of those men still live with their spouse
It’s a much different story for women -
Only 45% of women over 80 have a spouse or partner, and only 22% of those women live with their spouse. The majority of the spouses of these women are older and in nursing care.
There are a few realities here that need to be incorporated into your plan. Not only will your money have to last longer, for many women it will also need to withstand supporting an elder spouse in your later years.
In most families, women continue to take on the lion’s share of family responsibilities and are more likely to take time out from their career to attend to them.
- Maternity leave (short term)
- Stay-at-home parenting (long term)
- Caring for aging parents and/or disabled spouse
- Reduced income and investments
- Shorter time frame for investment growth
- Lower employer and/or CPP contributions and RRSP contribution limits
- Slower career advancement and salary progression
The results can have significant impact on your long term financial plan.
The most obvious result is the impact of not earning an income during the time off. This loss of income usually means that you stop investing – both inside and outside your RRSP – which by extension, reduces the amount of time your investments will have to benefit from the impacts of compound growth.
As you will not be earning income during the time off, you will also not be contributing to your employer sponsored pension and CPP or creating contribution room for your RRSP (because contribution room is calculated from taxable income). Both of these realities will eventually impact not only the amount of income you will enjoy in retirement but also, the length of time it could last. This added to the likelihood that you will live longer than your male counterparts, needs to be seriously taken into consideration in your plan.
Last but certainly not least, statistics prove that not participating in the workforce can slow career progression. Many women that take extended leaves return to the same level of position upon their return – while their counterparts who have worked right through have been promoted to higher level positions with increased salaries.
We all know that it’s important to do the right thing for yourself and your family and if that means taking time away from your career then great! This all needs to be taken into consideration with your initial plan and supports the need to do a review on an annual basis to talk about where you are, what direction you plan to take next and whether or not you need to make any adjustments to make sure that you will still meet your goals.
Whether we like it or not, for a number of reasons, including some that we have already talked about, statistics also show that quite often, women are still earning less than men.
Your goals are the same and you still pay the same price for products and services but in many cases, have to accomplish this on a lower income. This creates an even greater need to plan ahead.
Your plan needs to prepare you to achieve short term goals like saving for the children’s education or buying a home, to help you weather any crisis that may come your way and ensure you have adequate income when you decide to leave the workforce.
You may be single, or find yourself living alone due to separation, divorce or perhaps the unfortunate loss of a spouse. Regardless of the reason, many women do find themselves living independently.
Independence is great but, without a second income to help pay the bills and/or someone else to lean on for support should you become ill or disabled, there are multiple factors that need to be incorporated into your financial plan to help you maintain your independence and financial health.
If you don’t already – you need to create a safety net or as some people call it, an “Emergency Fund” in case your income is interrupted due to losing your job, illness, disability, etc. How much do you need to put away – 3 months salary? 6 months? More? and where best to invest it will be the first items we address together.
If you don’t have any children to worry about, you may believe that you don’t need any insurance. This could be true as you may or may not need life insurance but a solid insurance plan that looks at all options - disability, critical illness and the benefits of long-term care insurance will go a long way to making sure you can maintain the independence you enjoy.
Do you take out personal insurance or just rely on your employer’s group plan – which is better? Does it make sense to take out an insurance policy now – or wait until you’re closer to possibly needing it? We will answer each of these questions for you and help you decide what fits.
Finally, putting a Power of Attorney and/or Health Care Directive in place is extremely important, both for financial and health care decisions. This way, someone can manage your affairs if you become incapacitated.
When the right individual comes along, many of you will begin a committed relationship. This is an important step both emotionally and financially. You can avoid potential issues later on by going into the relationship with both eyes open. Once again, there are financial preparations that need to be considered before jumping in with both feet.
This is a major event in your life so talk about the finances. Each of you should disclose assets and liabilities, so that both members have a clear picture of their new partner’s financial background – here’s a good example - if past record includes a bankruptcy, you may want to know and talk about why and how it happened.
Keep receipts or statements to record the value of all assets prior to the start of the relationship or marriage, although keep in mind that in some jurisdictions, even assets acquired prior to the time of the relationship may be shareable.
The rules regarding the division of family property vary between provinces, but generally speaking, the assets acquired over the course of a relationship are shareable. From a financial perspective, we can give you advice but we’re not lawyers and always recommend that you speak with an experienced family lawyer before moving in with someone or getting married. Whether you’re coming into a relationship with your own home, a business you’ve worked hard to build up equity in or a precious family inheritance that’s dear to you, executing a domestic contract with your new partner is the prudent approach to protecting both parties’ best interests. This type of contract is increasing in popularity in today’s relationships and suggesting one early on can help avoid conflict and reduce stress for both of you in the unfortunate event that things don’t work out.
Finally and most importantly - If you have children from a previous relationship, make sure that you protect their interests by updating your will and, if necessary, purchasing insurance to provide for them and their care should something happen to you. Again, we can help you determine the right type and amount of insurance to meet your needs.
Even though you’ve committed to a new and exciting relationship, in today’s world, it’s considered prudent to maintain your own financial independence. This doesn’t mean you are any less committed to the relationship and your chosen partner should understand the benefits. Again, talking and putting all your cards on the table can help avoid uncomfortable conversations later.
If you have a credit card in your own name today – keep it and keep using it responsibly. If you do not, then it’s time to apply for one. You should be the primary cardholder on a credit card. This way, if something should happen to your partner, you will have instant access to credit that you may need.
Maintaining your personal credit rating could be as simple as using the credit card we’ve already discussed and keeping the account up to date. Again, should something happen to your partner or the relationship dissolve for any reason, having a good personal – rather than joint – credit score will be critical to you moving on in your life.
Once we begin working together, the next point will automatically be taken care of as part of the plan we will create for you. Traditionally, many women who entered into committed relationships assumed that they would quality for a survivor’s pension that would help fund their retirement – important to know that many considerations can come into play including the fact that if you become a spouse after the person has already started the pension (and they are receiving individual payments), they may no longer be able to make payments which provide the survivorship option.
Consider whether or not it would be better to maintain a relationship with your own lawyer rather than always meeting with your spouse in the room, especially if your spouse has a closer relationship with the lawyer due to business dealings. This simple step can help you avoid surprises, financial and otherwise.
Again, particularly in blended families or families with complex personal dynamics, this independent advice could really be valuable.
Although it’s really unfortunate, many relationships come to an end and whether the dissolution has been a long time coming, or due to a sudden decision, the flurry of emotions that you may have to deal with can make it difficult to think about financial matters.
Following these simple steps can get you on the road to financial recovery more quickly and help you sleep at night, knowing that regardless of how you’re feeling, your ability to pay your bills and manage day to day is taken care of by professionals.
Step 1….Speak to a family lawyer – BEFORE YOU TALK TO ANYONE ELSE. I can’t stress this enough. Let’s face it, we all know someone whose ended a relationship who no doubt has free advice to offer but everyone’s situation is unique so please, talk to a professional first. By the way, if you don’t already have a lawyer, we can help you find one…which brings us to Step 2…..Call me! There are immediate adjustments you may want to make to your financial plan that could touch your investment, insurance and estate plan.
Know, respect and accept provincial common-law regulations. Your family lawyer will be able to explain these in more detail but remember that in many provinces, a common-law partner will have essentially the same rights as married spouses after living together for what may seem to you like a relatively short period of time.
Make sure to act quickly to satisfy time limits when applying for support or division of property. Again, your lawyer can give you the specifics and again, another reason they should be your first call.
Many people are covered under their partner’s group medical or dental insurance but – the partner may have the option of cancelling that coverage at any time without informing you. It’s important that we take steps together to assess the coverage that’s right for you and put something in place to reduce surprises.
Stay tuned, in our next edition we will discuss building your wealth.