With more Canadians getting divorced later in life, financial advisors must be prepared to guide clients through the financial adjustments associated with becoming single. One important change is that your divorced client’s retirement will be solely dependent on one income instead of two.
Chris Buttigieg, senior manager of wealth planning strategy with Bank of Montreal in Toronto, shares three steps you can take when advising older clients who are suddenly single:
1. Re-assess the plan
In cases of divorce, you must be “reactive” in speaking to your client about this sensitive issue. Don’t broach the subject until your client has informed you that he or she is getting a divorce.
Once you know the client is getting a divorce, talk about re-assessing your client’s retirement plan and converting previous joint goals into goals for a single person.
One part of this step is helping your client understand that his or her planned retirement lifestyle used to be funded by two incomes and this is no longer the case.
Topics such as housing, social outings and vacation plans must be examined. You can help your client by developing a spending plan to support his or her new single existence, Buttigieg says.
Emphasize how controlling your client’s spending can result in residual funds that can be deposited into a savings plan or invested in a tax-free savings account or RRSP.
2. Assess your client’s insurance needs
The insurance coverage your client requires as a single person will depend on several factors.
Does your client have any dependents? If so, he or she should retain any term or whole life policies so there are additional funds for children should your client pass away.
Will your client pay spousal support? This support could require that your client’s life be insured and that proceeds from that policy go to the former spouse in the event of your client’s death, says Buttigieg.
If your client is solely responsible for his or her own expenses, a living-benefits policy will probably be most advantageous. In that case, make sure your client knows his or her options regarding critical illness, disability and long-term care insurance.
3. Ensure there’s a reserve fund
A reserve fund is crucial for self-sufficiency and even more so for single people, Buttigieg says.
“They don’t have the income or somebody else to rely on in case there’s an unexpected life event such as a disability or job loss,” he says.
Your client should have liquid assets easily available that would cover three to six months’ expenses.