We can’t always escape the sad events in our lives
– but we still need to carry on. Obviously, for a married
person, a divorce or the death of a spouse is a traumatic
We can’t always escape the sad events in our lives – but we still need to carry on. Obviously, for a married person, a divorce or the death of a spouse is a traumatic event. But if either event happens to you, you’ll need to make some financial moves to keep your life on track.
As expected, because women live longer, and due to divorce, I am meeting more women who have never invested in their life, and now are left to be 100 percent in charge of their retirement accounts, stocks and bond investments and day to day finances. My job is to hold their hands and take them through a process.
The first step is to examine their income stream. Will they be able to collect alimony or life insurance proceeds? If so, they will want to factor these proceeds into their overall financial strategy. If they are employed, and they don’t have disability income insurance, they may want to consider it because if they should become sick or injured and cannot work, they could face difficult times. Their employer may offer a short-term disability policy as an employee benefit, but it might not be sufficient, so the client may need to consider adding additional disability coverage on his or her own.
In considering their cash flow needs for the present, they’ll still have to plan for their future – including their retirement. When married, a woman may not have been contributing as much as she could afford to their 401(k), particularly if the spouse was fully funding his retirement plan. And if the spouse had an IRA, she might not have felt the need for one, too.
But now that she’s solely in charge of her own financial destiny, she’ll need to consider putting as much as she can possibly afford into her 401(k) or other employer-sponsored retirement plan, along with her IRA. Because a 401(k) and an IRA offer significant tax benefits, they are great vehicles in which to save for retirement, so she should consider taking full advantage of them.
And speaking of 401(k), IRA and other investment accounts, women may now need to change the beneficiary designations. These designations may even supersede the instructions on her will, so it’s important to keep them current.
Apart from taking these steps, what else should the client do to make sure she is in position to meet her own goals?
For one thing, she may need to review her overall investment mix, both inside and outside her retirement accounts. When they were married, she and her spouse may have established a portfolio based on a combination of his risk tolerances and time horizons. But now the client needs to determine if her existing asset allocation truly reflects her needs, preferences and aspirations. It is important to work with a professional financial advisor. If you don’t already work with one, now might be a good time to start.
Final suggestion: If the client has children at home, make sure her life insurance coverage is sufficient. She’ll want to help make sure her children will be provided for, should anything happen to her.
There’s no sugarcoating the pain and difficulties that can accompany the loss of a spouse through death or divorce. But by making the right financial moves, you can help make life a little easier for yourself and your loved ones.