Financial advice to my 20-year-old self

Women’s life expectancy at 83 years is greater than men, who on average will live to 78. Research shows that 33% of marriages end in divorce and 50% of women over the age of 65 are either widowed or divorced. At some stage in their lives, 8/10 women will have to take care of their own finances, but not all of them are prepared for this.

Speaking at the Alexander Forbes Women’s Day event at Summer Place on Thursday 6 August 2015,  Jenny Gordon, Head of Retail Legal Support, says that women should empower themselves with the necessary skills and knowledge to manage their finances. We need fewer “Cinderellas” and more women who take care of their finances, says Gordon.

Most women do not work with financial advisors and those that do have higher assets and greater confidence and preparedness to meet financial goals. Women often wait for crises like divorce, retirement, retrenchment and critical illness. Gordon advises how women can prepare in advance for these events to turn them into “manageable moments”.

Divorce

According to the Sanlam’s Survey on the Retirement Crisis, divorce is the fourth most emotionally devastating event. This is after death, loss of money and unexpected accident other than a motor vehicle accident, says Gordon.

After a divorce, both parties’ standard of living declines, because they have to run two households. If the parties shared a retirement fund, the proceeds that are split may not be enough. Research shows that more women wish to divorce than men, but less women initiate a divorce because they do not have the finances for litigation. “Building up a nest egg for a life crisis is not disloyal to your marriage, it is necessary,” says Gordon. Women should also start taking a more active role in the household’s finances.

Critical illness

“If you have a critical illness, you will survive if you can pay for medical treatment,” says Gordon. Quoting Dr Marius Barnard who developed the critical illness policy, Gordon says that dread disease becomes a probability over the age of 70.

The usual culprits are heart disease, cancer or a stroke, but dementia is the “real scourge”. “Alzheimer’s is a sad disease because it robs a person of who they are,” says Gordon. It is necessary to have conversations with your families about this. Most people appoint a family member to take care of their affairs through the power of attorney, once they are declared of unsound mind. However, this is a fallacy in South African law, as no one will be empowered to deal with your affairs, explains Gordon.

There are three remedies. One can apply for a curatorship, which is a more expensive option, costing between R50 000 and R60 000. There is also a new procedure where a person can apply for an administration order, which takes three months and two medical recommendations. The final option is a Trust fund.

Retirement

On average, people only live off a third of their earnings while they were working. Only 10% of people retire with enough money and 2% retire comfortably, says Gordon.

Another challenge is that money is not enough to make people happy. “One needs to develop a passion for something and that takes one a long way,” says Gordon. Experiences, relationships and hobbies are far more fulfilling than money. These passions are developed before retirement.  Spending money on small luxuries for other people provides a “greater rush” than buying large scale items, like a sports car, for yourself, says Gordon.

Last will

Do not make the mistake of dying intestate, advises Gordon. “Don’t let anyone else have your last word. Your last word is your will.” When dealing with a will, it is important to update it regularly. Let heirs know where to find important documents and passwords in the event of your death.

Assets can also be distributed through a retirement fund or a trust. Marriage is another way to distribute your inheritance. If you have a life-partner, be sure to get a cohabitation agreement to protect your rights.

This article was featured on Finweek.com.

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