Financial literacy can mean different things for people throughout many stages in life. In the case of older women, financial literacy can be the difference between enjoying a secure retirement, or the opposite. No one wishes to be struggling during their retirement years, yet many do, with older women finding themselves in the most peril.
In a new survey of widows from Merrill Lynch and Age Wave in the U.S., the researchers discovered that women are more than three times as likely as men to lose their spouse. But very few wives seem prepared to be able to manage their finances if their husbands die. The survey also found that only 14 per cent of widows were making financial decisions by themselves before their spouse died.
Worse still, half of widows experience a decline in household income of 50 per cent or more, according to the nonprofit Women’s Institute for a Secure Retirement (WISER).
These statistics got me thinking about my mother’s generation and how they relied on their husbands for financial expertise and decision-making. When I asked Mark Van Graft, Vice President of Business Development and an Investment Advisor at Mackie Research Capital Corporation how this situation is playing out today, he confirmed that not that much has changed from my mother’s situation.
“What couples need to do is to engage in cross-training,” suggests Van Graft. “You know, he can learn to cook and she can become involved in their financial decision-making.”
Van Graft’s own mother-in-law, 92 years of age, found herself in a difficult situation. “She and her husband didn’t cross-train,” he admits. “He didn’t know how to cook. He handled all the investments and paid all the bills. When he passed away, she couldn’t manage the finances.”
Early on in a marriage or partnership, women need to get involved. Even if the woman is not too interested in financial management, sitting in on meetings with a financial planner helps. When doing a plan, Van Graft, asks each spouse to write down their independent goals and afterwards to share them. “I try to get them on the same page.”
Another crucial step is to make a list of your investments, bank accounts, debts, insurance, lawyers, and accountants so the executor can do his or her job without frantically searching for basic information.
“In an ideal world, the surviving spouse should be fully informed,” says Van Graft. When creating a financial plan for clients, he uses software to calculate how much should be left in an estate to support the surviving spouse.
But there are options when a woman finds herself short of income during retirement. Baby boomers often have accumulated substantial equity in their homes – it can often be their greatest asset. The question is, how can you use your home’s appreciated value to your advantage?
Mortgage broker, Darlene Vilas specializes in reverse mortgages, a clear solution that Canadians 55+ can rely on to help with their cash flow, conventional mortgage debt or other expenses. “Currently, HomeEquity Bank’s reverse mortgages are not as mainstream as other financial products,” she says. “Yet it is one of the great ways to help older Canadians enjoy their retirement.”
Vilas recalls a client who was in the process of separating from her husband. With three children at home and her mother living on the same street, the last thing she wished to do was sell her home and move. Vilas arranged a reverse mortgage for this client, which allowed her to stay in her home. “The kids could sleep in their own beds, and they were close to their grandmother,” says Vilas.
When Vilas is approached by a possible client she asks herself what she can do that the big banks can’t. Since reverse mortgages are not a product that the big banks offer directly, she educates homeowners about this solution. This way, they can better understand how the appreciating value of their homes can help so they aren’t faced with the disruption of leaving their home, friends and community behind if they are forced to re-locate.
“The issue is that if you’re an older homeowner and you’re sitting on a substantial mortgage, the chances of you paying it back is slim,” adds Vilas. “Consider how long it will take you to pay it back.”
Another strategy is to investigate a purchase reverse mortgage from HomeEquity Bank. If you’re considering downsizing to a smaller residence, even in the same neighbourhood, you can pay cash and needn’t go to the bank to qualify for a new mortgage or a HELOC (home equity line of credit).
As we age, it can become increasingly difficult to qualify for a conventional mortgage. Today, to pass the “stress test” for a new mortgage, you must be able to demonstrate that you will be able to repay this loan at 5.14 per cent, the Bank of Canada’s benchmark rate, or plus 2 per cent more than the rate you negotiate with your lender, whichever is higher. Reverse mortgages are not subject to these rules.
Different uncertainties appear with HELOCs; that is, interest fluctuates with the Bank of Canada’s rate. Additionally, a HELOC can be called at any time.
There are sensible solutions for women facing life and financial challenges during their retirement years. Financial literacy is the first step to knowing what your different options are. The next step is to find your comfort zone for making intelligent and informed decisions when the time comes.