Divorce is often a stressful and difficult situation for couples, but what happens when you’re divorcing in your 60s and close to retirement age?
To make this scenario more tangible, imagine Mark and Jen, a Mississauga couple who recently split after 35 years. Mark, 63, is worried about what the divorce means for his finances as he approaches retirement.
In Ontario, property acquired during a marriage must be split equally when a marriage ends. For property acquired before the marriage, any rise in value must be split equally.
In Mark’s case, there are a few more complications.
Why the math feels worse than 50/50
On paper, Mark gets roughly half of the couple’s joint assets, but feels he’s getting less than his fair share. Here’s why:
- Retirement savings cut in half: Mark’s RRSP balance will be split with his ex, immediately shrinking the nest egg he thought he’d live on.
- House sale deferred: He’s staying with his 20-year-old son in their Mississauga home while his ex is moving out. Mark won’t see his share of the home’s value until it sells.
- Different financial situations: Mark is still working and earning a salary, while his ex-wife is retired. That means she’s drawing from assets immediately, while Mark is still in accumulation mode, but he feels more pressure to “catch up.”
The reality is that both spouses are under pressure. Housing costs, like utilities, insurance and maintenance, double for each of them. Furthermore, as they age, their healthcare risks rise as well.
Mark and Jen may have enough to get by in retirement, but not enough to maintain the lifestyle they envisioned together. As a result, Mark has a few financial gaps to fill.
Putting his income to work
Mark’s portfolio generates less passive income than it did a few years ago. He can’t unlock his home equity until he sells. And he has to stretch his lower retirement savings further now that he’s paying double for housing, utilities, insurance and maintenance.
Fortunately he’s still working, which gives him some time to rebuild the pot. Here’s what he can do in the meantime:
- Trim lifestyle spending: If Mark pushes the house sale forward, downsizes to a more affordable home and cuts down on discretionary spending, he can redirect more of his paycheque into investments.
- Rethink retirement age: Working a few extra years, say until he is 70, could boost his CPP payout by up to 42%.
- Prioritize liquidity: Since his home equity is tied up, Mark should focus on building up his savings accounts for flexibility.
- Max out RRSP contributions: If Mark did not make the full RRSP contributions in any previous years, he can now roll over those previous limits, giving him more opportunity to save for retirement. This could help Mark rebuild his nest egg after the divorce.
- Leverage TFSAs: Growth is tax-free and withdrawals are tax-free at any time in a TFSA. Keeping his emergency fund and other short-term savings in this account will ensure he is fully liquid when he needs to use the funds.
Dividing assets later in life leaves both parties stretched thinner than expected, but with careful planning, there’s still time to rebuild a retirement strategy that provides a steady income.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.