Ending a marriage comes with a large handful of challenges, with money usually topping the list.
As a divorcing woman, you may feel overwhelmed because you spent your married years letting your spouse handle your financial picture. It’s time to take the bull by the horns and set yourself up for success by following these tried and true steps.
1. Update your accounts
The first step in steadying the ship is to take back control over your accounts.
If you have changed your name, you will need to update your bank and investment accounts. Identification cards, passports, and other property in your name will also need to be updated as soon as possible.
It’s not exciting, it is boring, but it’s a necessary step toward protecting what is rightfully yours while getting yourself organised for your new life.
2. Create your own goals
Throughout your marriage, you probably had a number of financial goals you were working toward with the help of your spouse - paying off the mortgage, university fees and so on.
You now need to create your own goals, remember it probably wasn’t raining when Noah built the ark!
Getting ready for retirement, paying down mortgages or loans or funding an account for travel all look a little different when you’re on your own.
Knowing what you want is the best place to start.
3. Have a plan in place
After you’ve determined what you’d like to achieve, you need to work out how you’re going to achieve it...
Your new financial plan should answer questions like:
- When do I want to reach these goals?
- How could I use my current and future assets to help me get what I want out of life?
- What does success look like within this new plan?
Getting clear about the path you will pave to secure the things you want in your financial life is a powerful step toward securing a stable future. For help with creating an actionable financial plan, check out
our guide here.
4. Focus on what you can control
Emotions run high during and after a divorce, and they have a tendency to get in the way of reaching your new found freedom.
To steer clear of emotional pitfalls, focus on taking control where you are able. These areas may include paying yourself first through automated savings plans and investing with a long-term perspective in mind.
In addition to taking charge of your savings and investments, understanding the difference between what’s coming in the door (income) and what’s going out (expenses) each month is necessary for maintaining a tight grip on your plan. Know your budget inside and out, and make it work in line with your overall goals – without getting caught up in the things you can’t control.
5. Get help
Finding financial stability after divorce doesn’t mean you have to go it alone. At Jones Hill, we understand the financial complexities that come with ending a marriage and work to help you move forward in the best way possible.
We lend an expert hand in building a new financial plan that fits your updated needs and goals.
To schedule your consultation and get started down your post-divorce financial path,
contact us today.
You may have heard me on BBC Wiltshire yesterday morning talking about the Petition that is being put forward by Women Against State Pension Inequality (WASPI) for the government to help ease the financial uncertainty for women born in the 1950’s who say they have received little or no notice that the state pension age for women is being delayed by up to 6 years.
Firstly, a bit of history - back in 1908 the Government of the day set up the ‘old age pension’ aimed to help those over age 70 earning less than £2,000 a year (in today’s money). It was generous for it’s time and was means tested.
In 1925 it morphed into becoming contribution based, i.e. you had to pay into to it to receive it, and the start point was age 65 of the youngest spouse.
Under those rules Michael Douglas would be 90 years old before he could get his old age pension (are he and Catherine Zeta Jones still married?). This was deemed unfair, so just after the outbreak of WW2 women’s old age pension age was dropped to 60. And there it stayed for 55 years!
In 1995 we started the process of reducing some of the discrimination between men and women. Many ex-communist countries have opted not to reduce the discrimination as they believe women are disadvantaged by usually being the one to bring up the children.
In 2007 the Labour government decided to increase state pension age again eventually up to age 68, just 2 years off what it was originally set at in 1908! But it’s still not means tested...not yet anyway!
The decision was then taken that, in 2010, state pension age would start to increase and by 2020 would be complete. In 2011 this date was brought forward to 2018.
Of course people are living longer too, so delaying state pension for everyone will save the government a lot of money.
Apparently the government wrote to those concerned, and put adverts in the press, however when pushed for evidence of this under Freedom of Information, they refused as the cost to do so would be more than £600. No one remembers getting a letter or seeing any adverts. In 1995, only 1% of the population, 600,000 people, had internet access - remember 26K modems and the funny noises they made when they connected?
If the DWP gets mail returned, it doesn’t always try to track you down, and they freely admit that a sizeable proportion of their mail doesn’t even get opened. Can you imagine expecting to be claiming your state pension in a year or two, only to find that it’s been delayed by up to a further 6 years! Somewhere between 300,000 - 500,000 women are affected.
Some women were delayed by the first change to 65, and then by the second change as well. Many didn’t know about the first change and so the double whammy will have sent them into shock.
Men’s state pension age was delayed too. But they were given over 7 year’s notice of a 1 year delay.
Ex pensions minister, Baroness Ros Altmann, said that at least 10 year’s notice should be required to give people adequate time to make alternative arrangements. It took them 14 years to write to those affected by this debacle, but they say there is no wiggle room to put it right.
To compound the problem, at best, many women affected have small private or company pensions as companies used to exclude women and part timers from their company schemes. They were highly reliant on getting their state pension, and it’s been thrust beyond their grasp, twice. They were also much more reliant on their husbands staying in work for longer than expected.
Previous Pensions Minister Steve Webb said he acted too hard and too fast. Despite this, Baroness Altmann ruled out any help on 26 Sept 2015 even though when she was Director General of Saga in 2011 she called for a slower timetable and better information.
There was a debate, which the government refused to take part in, on 7 January 2016 and it had unanimous support from those attending. But, as a backbench motion it had no force to make the government act and DWP & Justice Minister Shailesh Vara said there would be no change.
The second debate on 1st February 2016 was also rejected by stonewall Shailesh Vara, although she said that the women could of course claim Job Seeker’s Allowance instead. This is worth much, much less than state pension and comes with a raft of terms and conditions designed to reduce how much you can have.
You can understand why women affected are very unhappy!
Here’s hoping that something more positive comes from this latest petition. We know there is going to need to be a compromise but it’s likely that one party will be compromising much more than the other.
If you want to know your state pension age, click here.
Remember that, at best, basic state pension is often little more than £20 a day, so you absolutely need to provide for yourself - if you’d like to talk pensions then get in touch.
Nothing feels better than accomplishing a goal you’ve set for yourself. Maybe you’ve been burning the midnight oil at the office and finally got that big promotion, or maybe you’ve put in countless hours of sweat into a home renovation. Regardless of your objective, seeing the end result is a beautiful thing.
It’s no different with goals related to your money, but for some reason, for a lot of people financial objectives seem a bit more challenging.
Goals that Work – and Ones that Don’t
Would you set off on a cross-country road trip without some idea of where you were headed or when you wanted to arrive? Most of us would avoid that disaster by having some sort of plan in place. Your financial goals should follow the same thought process: what do I want and when do I want it? In other words, they should be SMART: specific, measurable, achievable, relevant, and trackable.
You can work hard and set aside a few pounds here and there, but without setting specific goals, you are likely to feel a bit lost. Setting objectives for your financial life starts with understanding the specific “thing” you’re aiming for and then defining what success means in the context of that objective.
For example, your objective of wanting to retire by age 60 with enough assets to draw 75% of current income is a specific, measurable goal that you can track periodically. Simply stating you want to retire one day is lofty at best and sets no parameters for measuring your progress. Knowing where you want to go is great, but if you have little to no idea where you’re starting from, you’re in trouble!
Action is Everything
Your ’retire by age 60, drawing 75% of your current income’ objective only works when you figure out what’s needed to get there. To frame your goal, you will need to ask intelligent questions, such as:
- How much do you need to save now in order to reach the right account balance?
- Which investment vehicles do you need to set up to save in a tax efficient way?
Answer these questions and you’ll be on your way to sketching an actionable financial plan.
But if you’ve struggled with major financial goals, you’re not alone. Working toward something as far off as retirement, buying a second property or funding your children’s education can be overwhelming to think about, let alone plan for. These goals seem too big and too distant, but breaking down your financial goals into smaller, manageable chunks can help.
Let’s go back to our retirement goal – start with the big picture. If your lifestyle in retirement involves expensive hobbies, you’ll probably need more than someone who plans to just potter ‘round the garden.
Focus on understanding the big number first, and then break that down into smaller pieces that fit into your everyday life right now. Establish milestones for yourself that are realistic (i.e. savings X amount by the end of next year) so you don’t set yourself up for missing the mark.
Accountability Along the Way
If you’re like most people, setting a goal is not where the problem lies. Of course, you want to retire, or buy a beach home, or send the kids off to school without the burden of tuition – these goals are not uncommon. Unfortunately, reaching them without too many hiccups is. If you are struggling with reaching financial objectives, it’s time to get SMART about what you want.
Being accountable to another person who understands what you are trying to achieve is a powerful step in actually reaching your goals. At Jones Hill we know what it takes to get to the next level of your plan, and we bring a perspective that is both unbiased and proactive. We will boost your level of understanding about different methods to achieve your goals, leading to an ongoing relationship that helps you build, achieve and maintain your best financial life.
Unlike “the answer to life, the universe and everything” in the Hitchhiker’s Guide to the Galaxy, this question has no simple answer. However, just as a journey of a thousand miles starts with but a single step, here are three questions that will help to get your relationship with your adviser off on a sound footing.
1. What’s my investment philosophy?
There are several investment ‘styles’. To some extent the styles available will depend on your own and your adviser’s investment philosophy. This is why it’s important to choose an adviser who is sympathetic to your needs and objectives and doesn’t try and shoehorn you into something you don’t understand.
At Jones Hill, we see it as our job to work with you to achieve outstanding outcomes. An important aspect is whether you want to limit investments to companies trying to achieve certain moral or ethical standards, for example by specifically excluding companies that invest in tobacco or weapons.
Whatever you decide, flexibility is key so that if events – whether market or personal – take an unexpected turn, you are not stuck with an unsuitable plan.
2. What’s my risk profile?
Before making a single investment your adviser needs to assess your attitude to risk. In a nutshell, the higher the risk, potentially (not always!) the better the return, but also the greater the risk of failure. How much risk can you stand without it keeping you awake at night?
Well, younger people can generally afford to be a little more adventurous as they have longer to recover from any market setbacks. But for those of us who are a little older, we may want to settle for something a bit safer, which provides more stable and predictable returns. Boring as this may sound, it can be an effective strategy.
No conversation about risk is complete without mentioning Diversification, the golden goose of finance! In essence, diversification means not having all your eggs in one basket, whether that be stocks, bonds or property.
The reason being that sometimes one asset class is hot and sometimes it’s not, but it’s unlikely that all asset classes (property, bonds or equities) will all be swinging the same way at any one time.
3. When can I retire?
The £64,000 question! Why? Because it might be today, in 5 years or 25 years. The problem is, if you don’t know, then you’ll likely just keep plodding on aimlessly when you could have hung your boots up years ago.
The most significant factor in investments is time. The longer you save, the more your “retirement pot” is likely to contain. Whilst this may seem like a statement of the bleeding obvious, the fact is that most people leave it too late to start serious saving. Get ahead of the curve by knowing where you’re heading and when you need to be there.
In summary, make sure that you prepare for your first meeting with your adviser by thinking through the questions and topics you want to discuss, it will enrich the conversation and allow you to discuss the things that are most important to you.
Achieving a degree of financial stability throughout retirement years does not happen on a wink and prayer alone. Without a respectable amount of effort put into planning for sustainable income prior to leaving the workforce, your dream retirement years could quickly turn into a far different, rather dreary reality.
Fortunately, minding the retirement income gap – that is, making sure you do not outlive your assets – can be achieved by focusing on two crucial components of income planning: longevity and investment performance.
The Challenges
Part of the struggle in planning for the appropriate amount of income in retirement is the unpredictability of life expectancy. Although research provides data on average lifespan for males and females born in certain years, pinpointing the exact moment income is no longer needed is an impossible task. You may initially base retirement income needs on a 20-year retirement, but should health or other circumstances change, you may be forced to stretch your assets an additional five, 10 or even 15 years.
Similarly, adverse health diagnoses may mean an increase of income for a shorter period of time. If you selected an annuity as the sole vehicle for generating retirement income, shifting cash-flow to meet changing needs is not an option. When flexibility is not infused into your retirement income plan from the start, specifically through diversification of income sources, minding that gap may be out of the question.
Mr Market
Market performance lends a hand in retirement income planning as well. In an ideal plan, underlying investments are able to generate a return high enough to sustain a selected withdrawal rate. For instance, following the conventional rule of thumb suggesting one take no more than a 4% withdrawal from assets each year typically allows retirees the ability to survive the worst of what the broad market has to offer in terms of performance, all while sustaining an adequate level of income.
Managing Drawdown
However, research has found that maintaining a 4% withdrawal rate throughout retirement years actually results in excess funds – more than double initial asset worth for 2/3 of individuals. The traditional school of thought surrounding the 4% rule is a safe place to start when it comes to not outliving assets, but money is left on the table for a large number of retirees who do not include some degree of flexibility within their overarching plan.
Sound income planning is paramount for individuals if they want to ensure the hard-earned money set aside specifically for retirement is able to satisfy cash flow needs over time. However, the unpredictability of market performance and longevity make creating a concrete income plan a true challenge. To mind the retirement income gap, it is necessary for individuals to create a plan that carries a degree of flexibility, not only in terms of the source of retirement income but also as it relates to the amount withdrawn each year.
If you are retiring soon you’re probably looking forward to
taking advantage of the new pension freedoms, which give you more flexibility
and control over your retirement savings.
However, before you go jumping in with both feet it might be worthwhile giving
some thought to the challenges that you are likely to face in arranging a
secure and flexible income for retirement.
Now that you’re no longer required to purchase a lifetime income annuity, there
are a few questions to consider:
* Should I buy an annuity at all?
* If not, then how should I manage my pension pot
to make sure I have enough income to cover my spending?
*And perhaps most concerning of all; am I likely
to outlive my savings?
A report by Retirement Advantage, published last week highlights the compromise
between having a secure income and having the flexibility of a drawdown
pension. It turns out that what most people value above anything else is
security and certainty of income (43%), and coming a close second was
flexibility (34%).
Unfortunately, it can be tricky to find a middle ground
between the security of a guaranteed income and the flexibility of being able
to access larger sums in case of unexpected circumstances.
Long lives the annuity
While the days of the traditional annuity-for-all might be
over, the certainty of a guaranteed income still makes good sense for those who
value security, especially if the annuity is set to rise with inflation.
Annuities are still one of the only options for insuring you against outliving
your savings.
But annuities aren’t for everyone, particularly if you’re looking for
flexibility. Annuities are a one-size-fits-all deal, which won’t adapt to your
changing needs. For example:
* If you are unfortunate enough to die 5 years into
retirement an annuity won’t leave anything behind for your loved
ones.
* Or if after signing the contract you learn that you
have an incurable disease that will reduce your life expectancy to a
precious few years. In this case, your annuity won’t give you any flexibility
to take extra income so that you can enjoy your final years.
Drawing on flexibility
An alternative approach might be to self manage your
retirement savings through a drawdown pension.
The safest way to go about this would be to pick a reasonable life expectancy
(say 100), invest your pension pot in line with your attitude to risk, and each
year withdraw enough money to cover your expenditures ensuring that you don’t
leave yourself short for the future.
The increased flexibility of being able to withdraw money as and when you need
it is likely to have a wide appeal, particularly as life is uncertain and often
results in unexpected costs.
However, what is gained in flexibility is fundamentally lost in security. You
can have no certainty that your pension pot won’t run out during your lifetime,
particularly as the value of your pot is linked to the uncertainty of your
investments.
Additionally, tough spending decisions will need to be made at least annually
because you now have the prospect of outliving your pension.
The best of both
So is it possible to have both a secure and flexible
retirement income?
One option might be to use your pension to annuitise your essential expenditure
and invest the remaining amount into a drawdown pension.
This would provide you with the security of a guaranteed income each year for
the rest of your life to cover your basic needs, whilst delivering the flexibility
to drawdown additional income, as you require it.
An important decision
You will have worked hard throughout your life to ensure you
have a secure income in retirement that is flexible enough to meet your
changing needs. This should be a simple and straightforward affair, however as
the landscape changes, challenges are likely to present themselves.
Securing a certain and flexible retirement income is one of the most important
decisions you are likely to ever make, at this important juncture in your life
serious consideration should be given to how best to manage these potential
pitfalls.
Millions of pensioners and those approaching retirement will now have the chance to raise their state pension income by up to £25 a week with the launch of a new scheme.
From 12 October 2015 to 5 April 2017, you are able to apply to make a ‘Class 3A voluntary contribution’ to top up your State Pension by up to £25 per week.
Under the deal, you can choose to top up your weekly basic state pension by between £1 and £25 a week.
How much you need to contribute will depend on:
* How much extra pension you want to get each week
* How old you are when you make the contribution
If you are 65 now and you want to buy an additional £1 a week for life it will cost you £890. If you want to buy the full £25 (or £1,300 a year) it will cost you £22,250.
Cheap Annuity?
The reaction to this has been generally good, with a string of experts pointing out that this is effectively a very cheap annuity.
For example, if you had wanted an annuity that provided you with £1,300 per year, on the open market you would pay around £35,000, rather a lot more than the £22,500 that the Government are asking for.
Effectively, you’re getting an annuity rate of 6%, far better than the 3% available on the open market.
On top of that, factor in that your spouse can inherit 50% of your State Pension on your death and it looks like a bargain, doesn't it?
Double Taxation
In many ways the scheme - known as Class 3A - looks generous, but it may not necessarily be the best way to boost your pension.
The state pension top up is likely to be paid with money that has already been taxed, and will have tax applied a second time when taking the income from your topped up state pension.
This is in contrast to an annuity purchased via your pension where the contributions are exempt from tax, the growth of the funds are exempt and tax is only applied when taken as an income.
All of this will reduce the net amount of income that you receive.
Payback Period
So how long would you have to live for you to get your money back?
Lets say that you hand over the £22,250 for the extra £25 a week.
* If you are likely to fall below the personal allowance tax threshold of £10,600 and will not pay tax on the income, it will take 17 years for the state to return to you the money that was yours anyway (£22,250/£1,300). You’ll need to live to 82 to break even.
* For those who will be basic rate taxpayers, you can expect 21 years before you break even at age 86.
Given that the average life expectancy in the UK is 81.5 years, it may not seem like such a good deal after all.
Other Options
To receive the full state pension, you are required to have 30 qualifying years of national insurance contributions.
For those who don’t, luckily you can pay to plug the gaps. Each year costs you £733.20 and will get you an extra £200 a year.
That’s a payback of less than four years for non-taxpayers and just over four years for 20 per cent payers. That’s got to be better than 17 and 21 years with the State Pension top-up.
Alternatively, you could consider deferring your pension. Each year that you defer your pension, you will receive a 10.4% increase in your annual payment. The payback on this would equal 9.6 years, not quite as good as 4 years but certainly a lot better than 17 years!
As always, the devil is in the detail. Despite the headline cheap annuity, it pays to consider the opportunity cost.
It is a question that sits at the back of many people’s minds. It doesn’t hold much weight during your 20s and 30s, but by the time you reach your 40s, retirement will be on the horizon and you’ll be wondering when you should start putting real, concrete plans into place.
So when should you start thinking about retirement? The answer, according to many experts, is as early as possible. The earlier you start making plans and paying into a pension (this will soon become compulsory thanks to auto-enrolment), the better quality of life you will have when you retire. Thinking you’re ‘too young’ to start thinking about pensions is one of the biggest mistakes many savers make, purely because every year you work without paying into a pension, you are essentially losing money.
People live longer nowadays than they ever have done before, which can often mean that retirement stretches out for longer than you think. In order to avoid living off a pittance when you retire, it’s important to put away some savings early on. It’s better to save smaller amounts over a longer period of time, than to rush paying into your pension in the last five years before you retire.
Savings need time to grow, and the longer you give them, the better they will look when you finally receive those projected pension figures. Would your income now be enough to live on in 20 or 30 years? Think of how much you would need to save in order to achieve that figure when you retire. You are the only person who can save for your future.
If you are rapidly approaching retirement age and still worried about how much you’ll be able to draw when you retire, get some advice. Independent financial advisers are often full of tips that can help you to boost your income close to retirement, and you can be sure that they are impartial, with only your wellbeing and financial status in mind. Just as it’s never too early to think about your retirement, it’s also never too late to boost your retirement income and ensure you are set up for your life post-work.
If you have worries about your pension plan or you simply want to reassure yourself that you’re on the right track, speak to Jones Hill independent financial advisers today.
It’s never too early to start thinking about your pension, and putting away funds that can be used as your income later in life. At Jones Hill we have put together a helpful timeline that will help guide you through the pensions process – starting ten years in advance, so you have plenty of time to perfect your policy and your plan.
10 Years Away
With retirement ten years away, it’s time to take a step back and review all of your current savings and investments. Be sure to take into account any pensions that you may have lost track of from years gone by. There is a Pension Tracing Service that can help you to calculate these figures, as well as a predicted figure of your state pension from the Pension Service. With ten years to go, you’ll be able to work out if you’re on course for the pension you want, and you’ll have plenty of time to make up the difference if your projected income is less than you’d hoped.
Five Years Away
Conduct another review of your finances, and assess how much risk there is involved with your investments. Around five years before retirement is the perfect opportunity to begin reducing your involvement with investments that have a higher risk status, turning to those that have a more steady flow of income. At this point, a sizeable loss would be hard to recover so close to the date of your retirement. Reduce risk five years from retirement to ensure your income becomes more steady and reliable.
One Year Away
This is where things start to get serious. Get an up-to-date overview of your state pension, and put together detailed plans for your predicted income expenditure in the run up to your retirement, and the first few years afterwards. This is the point when independent financial advice is highly recommended, to ensure that you are fully prepared for retirement, and to help make any small adjustments that might be necessary.
Six Months Away
Your pension provider will send you a letter confirming your date of retirement and the current value of your fund. For those who have saved with different providers over this year, this may result in multiple letters and a few quick sums to figure out what this means for your total income.
Three Months Away
Again, you’ll receive a letter from your pension provider, this time outlining the annuity they are prepared to pay you for your pension. In certain cases, it is sometimes worth consolidating your various pension pots (if you have more than one) in order to receive a more competitive annuity arrangement. Shop around, seek some independent advice, and find the best rate for you.
Retirement Day
By the time your retirement arrives, you should feel happy and comfortable with the decisions you made in the years leading up to drawing your pension, whether you received independent pensions advice or whether you did your own research and figured out your own best policy. You should have enough to enjoy a happy and fruitful retirement.
For many years Which? Magazine has been floating around libraries, dentist waiting rooms and featuring in mailshots. Don’t you just wanna squeeze them all to bits?
Which? is the consumer watchdog that keeps an eye open for scams, dodgy deals, but more importantly offers consumer information on best buys and best deals. Over the years it’s done sterling work in identifying engineering faults in motor cars, irons and washing machines. Surprising then, that it ignores its own advice in putting consumer interests first when it comes to financial advice.
To explain: as people near retirement age they’ll want to talk to an adviser about a range of issues, from arranging a regular income to placing their investments in a secure home. As far as income is concerned, there are choices to consider. Should a pension be provided for a surviving spouse; should a cash lump sum be taken alongside a reduced pension; should existing savings be brought into play?
Any advice sought should include a fully independent review of the client’s current situation and future plans, examining all the options. It’s a lengthy but essential and productive part of financial planning.
Which? however, is providing just a small part of the advice through its own, restricted advice outlet, Which? Annuity Advisers. Unfortunately, this part of the process is often misunderstood to be the central part of all available advice, to the point where the other crucial elements are ignored.
Which? offers whole market annuity advice, which in and of itself is a good thing. However, without the extensive research work necessary to determine whether an annuity is actually even suitable (there are other options) the whole of the advice process is flawed.
In fact, the approach taken by Which? Annuity Advisers is exactly the approach they’ve criticised High Street banks for taking, for decades now.
You couldn’t make it up.
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