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Managing Retirement Savings after a Divorce

By Bev van Nijkerk, 9 January 2020

Nobody gets married with the intention to divorce their spouse. Unfortunately, the harsh reality is that approximately half of the marriages worldwide end in divorce. In South Africa, figures from Statistics SA show that divorce rates have been increasing year-on-year.

If you get divorced and are legally entitled to a portion of your spouse’s retirement money, take care before you think of this money as a ‘windfall’ to spend. Instead, remember that it was initially intended to provide a comfortable retirement.

Bev van Nijkerk, Market Segment Specialist at Sanlam, says divorce is an extremely traumatic event on its own but its financial implications and considerations are some of the thorniest. People should therefore make sure that they carefully consider the bigger picture when it comes to evaluating their financial situation and making long-term decisions.

“For starters, where just one person was the breadwinner in a household, divorce will often result in the other person now having to find a job. These scenarios mean divorce often accompanies difficult decisions about where you are going to live – whether to buy a new home or to rent for a while.”

Planning for the Future

You have to ask yourself what your retirement will look like if you took the money and bought a property. Van Nijkerk says some people buy a house, raise their children, sell it at a profit in the future and then plough that money back into their retirement savings. But this takes huge discipline to carry out!

“Whatever decision you make, make sure that you base it on a holistic picture which takes into account your living expenses today and your retirement needs in the future. Don’t try to guess what your retirement needs are going to be – get a professional financial adviser to calculate this for you,” says van Nijkerk.

When balancing your immediate needs with your retirement savings, the other critical issue to consider when you get divorced is how to boost your retirement provision. Divorced people often have to redouble their savings efforts to make up for the divorce settlement withdrawals and the fact that they’ve missed out on the effect of compound interest, says Van Nijkerk.

The Sanlam Retirement Benchmark Survey

“In a recent Sanlam Retirement Benchmark Survey, we saw that only 10% of retirement fund members consider the impact of divorce on their retirement planning. Women often don’t consider the fact that they are likely to live longer than men and, therefore, have to make more provision for retirement.”

A Sanlam Retirement Benchmark Survey showed that women can expect to live four years longer, and will therefore be in retirement longer than men. At the same time, several recent studies have found that women invest their pensions more conservatively than men.

Van Nijkerk says it might be overwhelming for a woman who is not used to making her own financial decisions to take charge of choices about investments. However, she encourages women to be astute, to ask questions so that they understand all the financial implications, to negotiate advice fees, and to seek a qualified financial adviser who will help them during the financial planning process.

Consider Getting Professional Advice

“You need to find someone to help you walk the path. You may need to rethink your whole retirement philosophy because the retirement plans you had with your ex-spouse may not be realistic now – given the new life stage you find yourself in, bringing new financial realities. This is especially true if you find yourself in the ‘silver-hair divorce’ situation which is now a growing trend. When you divorce later in life, you’ll need to be more conservative in your investment approach.”

Van Nijkerk says, on the other hand, people who divorce at a younger age have more time to ride the markets and they can therefore be more aggressive in their approach. A Sanlam survey found that 75.9% of retirement fund members are concerned that they are investing too conservatively. Van Nijkerk says when you are still young, you can consider a portfolio that is more aggressively structured until you approach retirement.

Sanlam Life Insurance is a licensed financial service provider.
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