Divorce and separation is of course extremely challenging at any age. It leads to a significant change and reshuffle of someone’s financial situation and life overall.
It can often knock people off their axis, making them feel unstable and lacking clarity about where they are now and where they are heading.
This of course can apply to people of all ages and stages of life, we have however seen that it can be magnified if the person is closer to retirement.
It can be particularly unsettling because their plans for a dream retirement may now feel out of reach or extremely unclear.
What they had pictured as their likely future life and financial position after finishing their (or their former partners) working years has now completely changed.
All of this can lead to feelings of uncertainty, anxiety, stress and fear. Not an enjoyable or good place for anyone to be.
So what can they do?
Firstly they need to get in the right headspace. This is where the right guidance and support is vital.
We have all been in a negative mindset about something at a time in our lives and often it’s hard to get out of it on our own.
But a story, an example, or feeling supported by someone who understands or who has come out the other side of the same event we are going through is often the key.
By getting into this positive mindset, putting things in perspective and taking one step at a time, they can start to move forward. Simply getting to the start line rather than spinning around in a state of uncertainty and anxiety can be a huge win in itself.
Once they can see some light at the end of the tunnel and feel in a good headspace to work on things, there are some amazing ways for someone to again feel safe, secure and excited about their future life and financial opportunities.
The first thing to do is a brain dump of all the things washing around in their head. Some of the things they may be pondering could be:
- What do I want my life and days to now look like?
- What do I need in a home? Will I be staying where I am or moving? Where do I want to live (suburb), where do I want to live (actual home size etc), will I buy or rent? What’s my budget?
- How much do I now have in Superannuation and what might that mean for when I can retire and what lifestyle I could live then? What are the various things I need to think about in regard to my superannuation due to the impact of the divorce? (Refer to volume 4 of the Family Law Financial Journal) https://www.prosperadvisory.com.au/superannuation-splitting-in-a-covid-19-environment/
- If they have kids, what impacts does that have on their planning and decision making?
- Has my mindset about work changed? Do I now need to work more or less, do I want to change jobs and refresh other parts of my life? Will I just take some leave and then decide?
- What is my actual current financial position? Am I actually truly clear on my income and expenses and my assets and liabilities?
- How much do I now need to live both short and long term? My numbers and needs are so different based on my new situation and I don’t feel clear on this so I need to work it out.
- Who else are key people in these decisions? Is it just me I need to worry about now? If yes this can be good as they have freedom to make their own decisions, but it can also be hard as they may be used to running ideas and big decisions past their partner.
The list could go onto various other items, but you get the point that by actually writing all these thoughts down the person can now clearly see what they need to assess and work on.
The next step is to put answers, numbers and solutions around each of the key questions. In many cases, the answers to one question will assist the answers to many other questions.
This is when the exciting stuff really starts!
What if as someone works through these different ideas and options, they could have a ‘crystal ball’ available to them which lets them visualise and compare the longer term financial impact of the different decisions?
Great news. They can!
This is without doubt one of the most popular things we do with clients that gets the most positive feedback. I mean who wouldn’t want to know the potential long term future impact of decisions made now and have the option to compare different scenarios. No one.
The process can include a huge amount of key data such as:
- Current asset and liability values and balances.
- Potential returns on investments based on how they invest, how much risk they take and historical returns (noting that past returns are no guarantee of future returns).
- Annual living costs
- A range of different forms of income
- Lump sum expenditure like purchasing property or a car or annual holidays at different intervals
- Potential Centrelink or other government benefits,
- Plus many more variables
We can also fast forward right out until way past peoples life expectancy to determine how much they might be able to spend each year in retirement so they know what sort of lifestyle they might be able to enjoy.
It gives people so much more comfort when making such big decisions. The other great thing is once the initial scenarios are setup, they can be reviewed over time to see how they are tracking and also adjusted as the persons position, life and plans evolve and change.
Real Life Case Study Example
The below chart gives a simplified summary of how the end results of this process can look. There is of course a huge amount of separate numeric data and information that supports it, however this graphic is a nice simplified way to show some end comparison results.
In this scenario, the client had a number of different ideas they were thinking about for their life. However they were stuck and indecisive as they didn’t know the implications or differences of going down different paths. Their ideas covered a whole range of areas, but one was this ‘nagging’ feeling that they would like to at some stage change their work to more of a passion project and diverge away from their current long term career path. This of course was scary for a range of reasons, not the least being the fact they may see a significant reduction in their income and their new project may make no money at all. They did however feel that it was what would make them happiest and they wanted to explore it.
By putting together a range of scenarios that factored in all key data and different scenarios (including the move to a passion based form of employment with a potentially lower income) we were able to show the client that even in the worst case scenario we still expected them to have significant assets right through to age 100. Also the difference in asset value in all scenarios was much less than they anticipated given a 50 year timeframe for the projections.
By understanding the potential outcomes in advance, this gave the client the comfort to know that if they wanted to, they could pursue anyone of their different ‘future lives’ and they could even quit their job and engage in their passion project with a low probability of creating any medium to long term financial stresses or problems.
This gave them such RELIEF, EXCITEMENT and OPTIONS!
They have since pursued their preferred path and they are feeling extremely happy and back in control.
That’s what this is all about:
Turning stress into relief.
Turning negativity into excitement.
Turning uncertainty into an abundance of clear choices and clarity, to then make educated decisions and move forward with your preferred life.
By Josh Pennell
Director – Prosper Advisory
Founder – Family Law Financial Journal