By Vicki Haak
Getting a good financial plan in place is no different than having a detailed road map before you head out on a journey. In this case, the journey is your life forward with as few bumps and meanderings as possible. We talked recently to Vicki L. Haak, Certified Financial Planner™ in Rhinebeck, N.Y., about the key steps for anyone widowed or divorced later in life to take. Haak, cited by Hudson Valley Magazine as one of its 2016 Five Star Wealth Managers, herself is divorced.
- What are the biggest financial concerns you hear from women who are 50 and older when they didn't expect these events and failed to plan?
By far, the most immediate concern expressed is if they will be able to live comfortably on their new sources of income and not deplete their assets before or early into their retirement. Being financially secure enough means they can stay in their home or buy a new home/rent and continue to cover both their committed and discretionary expenses. The fear of literally being poor--and not just compromising their current lifestyle, but falling into a level of poverty that affects their health and overall emotional well being is a huge concern.
- Are they literally out in left field or are some aware of what they have financially?
Some women are literally unaware of their family's financial situation. They may have entrusted the role of CFO (Chief Financial Officer) to their spouse and invested their time and energy to raise a family and full- or part-time work. Others have an understanding of their finances and may have worn the CFO hat. That said, the emotional impact of the death or divorce can throw them into a state of panic and self doubt. Understandably, they are scared and cannot see beyond the immediate upheaval in their lives. Many may rush to make ill informed decisions such as selling a home too quickly or liquidating retirement savings. Building a team of professionals who can be sympathetic to their situation but take the emotion out of the decisions that will last a lifetime is critical. One of these professionals needs to be a financial professional such as financial planner and/or accountant, as well as a mediator, divorce lawyer, and estate attorney.
- Do most seem to have jobs where they can manage on their own? If not, how difficult is it to find work after 50? Do fewer get maintenance or alimony?
Some do have jobs, but with the current disparity in wages between men and women, there is no guarantee that they will be financially secure, which means to be able to maintain their lifestyle for both fixed and discretionary expense needs. Regardless of whether it is a divorce or death situation, they now have to balance multiple roles that can compromise their ability to maintain a career or move back into the workforce at substandard wages. My experience is that most women do receive some form of maintenance, but may have settled for far less than is reasonable just to "get it over with" (the divorce). The emotional toll often cripples their ability to "do the math" to calculate how their finances will be impacted in the long term. That is where working with an experienced advisor comes in.
- What about those who didn't expect the divorce. Do you find they have to go back to work or just dial back their lifestyles?
Regardless of who "serves the (divorce) papers," the impact on their lifestyle can be traumatic. Not only may they be dialing back on their lifestyle but they may also lose the security of future earnings from pensions and retirement savings. Going back to work is often a key factor in keeping their heads above water financially and emotionally. But the job market and outdated skills may force a woman to settle for a lower wage job without benefits. Health insurance becomes a big concern and depending on the separation agreement coverage may end years before they can apply for Medicare made easier with the advent of Obama Care. Developing a budget and taking ownership of their cash flow is critical. You have to own the situation. It can be empowering if approached mindfully.Budgeting should not be about deprivation but instead about acknowledging what you have to work with and maximizing your buying power. If at all possible, I often encourage a divorced woman or widow to keep their home until they are emotionally ready to take the step to sell. This can be financially challenging.
- I've read that even if the divorce was welcomed by the side initiating it or even both parts of the couple, it still can cause a significantly bigger financial strain after age 50 than it would for those much younger. The main reason is based on simple arithmetic: there's less time to recover financially. True, or are there other reasons?
A divorced person with a limited skill set may need to work not only to maintain her lifestyle but to rebuild her share of the retirement nest egg. She can be thrown into a situation of working for low wages for a longer period of time in order to sustain the retirement goal previously set. Even if the divorced woman has a higher paying career - the impact of the divorce--legal fees, division of assets, strain on cash flow can compromise her future goals. Every situation is unique, yet the factors involved follow the same thread--redefining the cost of maintaining a lifestyle, creating a budget and sticking to it, having the confidence to know that this is a snapshot in time, and becoming empowered to move forward.
- Is it fairly different from what widows face? Are they in better shape because they have their husband’s life insurance, retirement funds, and possibly his social security, if she’s over age 65?
It really depends on what type of planning and plans were set into place well before the spouse's death. My experience has led to both situations. Surviving spouses with the wealth secured for two and surviving spouses who are thrown into financial hardship at a very vulnerable time in their lives. In some instances, life insurance, whether individually owned or through an employer, can help to make the difference between being impoverished and being financially comfortable. Pensions, Social Security, building cash reserves and retirement savings and managing debt all play a pivotal role in providing financial stability in the event of a spouse's death (or a healthy retirement together). Couples need to address having an estate plan and preparing for long-term illness. The human condition seems to be to avoid these uncomfortable discussions and exercises. When you have just lost the love of your life, it’s hard to make sound financial judgments, and easier to compromise. Again, having a plan in place and working with experienced advisors can make a big difference in crafting a secure financial future.
- What lessons would you share with women who face these challenges? Where do you start?
I listen. So many good hearted people are anxious to provide advice and share their life experiences, all well intended but perhaps not skilled in the nuances of providing sound financial advice. I will share that while I have helped women in situations similar to theirs I understand that their story is so very personal. Many women are crippled by the sense of vulnerability and frightened by not knowing what the future holds. I try to remind them that this is a moment in time--yes, a deeply emotional one, but one that together we will work through at their pace. Financial decisions will be made together and when they feel confident in making them. Clearly time sensitive decisions will need to be made. As their advisor, it is incumbent upon me to help them sort out immediate challenges from those that can be addressed at another point in time.
- Do you find that you often recommend therapy to heal the psyche through one professional or some kind of group support?
No, that doesn't come into play. I feel it's a step over a boundary I don't want to take since it might blur the lines for me for offering financial advice.
- Do most want to remain single, and if not do you make any suggestions about pairing up legally, which might affect their financial footing? How many typically remarry?
I rarely have that conversation, even with women with whom I have worked with for a few years. My advice to them would be to find themselves first, feel comfortable with their new story, and confident in making their own life and financial decisions. Coming from a place of "owning it" invites abundance and the self assurance that is necessary to move forward.
- What about the financial consequences of remarrying and sharing assets, if the widow or divorced woman is financially secure? Do most remarry for financial security?
Having provided financial advice and guidance for over 20 years, I have had the opportunity to see some of my clients remarry or enter into long term relationships. I am a strong advocate of women defining their financial independence and protecting their assets. Blended marriages and later in life relationships have their own set of unique circumstances. Working with financial and estate planning professionals to secure assets for the present and to leave a legacy for future generations is, in my mind, key to a healthy relationship.
- If the divorcee gets the house but is financially strapped, do you ever recommend a reverse mortgage, assuming she gets the house free and clear? Same question if a widow cannot afford to stay in her home?
Often a house is the biggest asset, yet the most illiquid. If children are younger, they might wish to keep it, if possible, to maintain family stability. But once we're working with their cash flow, we might determine that it's best not to keep it once they're emotionally able to give it up and go smaller or to a home with fewer expenses. I rarely make a reverse mortgage part of the immediate conversation, but it might be something we get into later.
- Anything else you'd like to share about getting a house in order financially?
I always advise planning for the worst-case scenario and hoping for the best!
Photo credit: Maureen Gates, www.sharpimagesphotographic.com