This is a third extract from Bruce Cameron's latest book, Financial Freedom for Women, which is published by Zebra (a division of Struik) and retails for R99.99.
Over the past two weeks, in extracts from my recent book, Financial Freedom for Women, I have shown that women are significantly disadvantaged in retirement. This week I deal with the solutions.
To my mind, there are nine rules women must follow if they hope to enjoy a financially secure retirement.
Rule One: Details of retirement scheme
Get the details of your spouse's employee benefits, including retirement and health benefits. A good starting point is to know his income level as most retirement and disability benefits are based on this.
You need to know these details so that both you and your partner can judge the effect your plans will have on each other. Before marrying and during marriage, women should, on the same basis as their husbands, assess their retirement and other needs. Do not rely on being catered for as a "spouse" on your husband's retirement plan.
If your partner is employed in the formal sector you need to know the name of the scheme and the type of scheme, for example, whether it is a defined benefit or defined contribution scheme.
If he is self-employed, you need to know what retirement, disability and life cover arrangements he has made. You should pay particular attention to the benefits you could expect in the event of his death or disability.
Various retirement schemes have different rules and consequently different benefits. For example, a group life, death and disability benefit (life and disability assurance provided by a retirement scheme or employer) is normally far larger with a defined contribution retirement scheme than with a defined benefit scheme. Both are based on a multiple of annual pensionable salary. The multiple can vary from one times the annual pensionable salary, to as high as eight times an annual pensionable salary.
Rule Two: Non-negotiable retirement plans
From the day you start working, you should make plans for retirement, and in any marriage agreement, you should make the continuation of those plans non-negotiable.
For example, if you agree to stop work to bring up children, then contributions should continue to be made to your retirement funding. If you make your retirement plans before you marry and have them written into your marriage agreement, you should not have scrabble to retrieve your position if your marraige ends in divorce.
Rule Three: Save all the time
You should seriously consider a retirement annuity into which you can pay differing amounts of money. You can only draw a pension from a retirement annuity after the age of 55. This can have a draw back in that you cannot get your hands on the money until the retirement annuity matures - but then nor can anyone else.
If your husband is unable to contribute to your retirement funding needs while you are not working, you must ensure that while you are working you save additional amounts for your retirement.
Rule Four: Name the people who benefit
Ensure you are the beneficiary of life assurance policies taken out on your partner's life. Even better is to have the policy ceded to you. If the policy is ceded to you, it cannot be ceded to anyone else without your permission. If you have been named as a beneficiary, only the person who owns the policy can remove your name as the beneficiary without your consent.
The life assurance company must be informed in writing that the policy has been ceded. You need to ensure that the premiums are kept up to date. If, say after divorce, the premiums are not paid by your former spouse, make the payments yourself so that the policy does not lapse or lose value.
Rule Five: Find out the history
If your spouse has been married before, establish the financial consequences of the divorce. In particular, establish what rights the previous wife has to accrued retirement savings and whether you and your spouse will be financially secure when you retire.
Rule Six: What's mine is mine
Ensure that what is yours remains yours. If you are helping out a spouse, for example in funding a business, make it a repayable loan rather than a gift, particularly when retirement savings are involved.
Do not see your accumulated retirement funds as a standby source of family financing unless in dire need. Cashing in your retirement funds (where this is possible) to fund some venture is dangerous, ill-advised and will have tax consequences.
Rule Seven: Keep assets in your name
If your husband runs his own business, ensure major assets, such as your home and motor vehicle, are in your name or in the name of a trust of which you are also a trustee. You need to do this to ensure creditors cannot attach the assets if the business venture falls apart.
If your assets are exposed to creditors then you may find you will have to use your retirement savings as a financial lifeline.
Rule Eight: Get independent advice
Preferably have a different financial planner from your partner as there will then be no conflict of interest.
Rule Nine: Be in control
Stay fully involved in all your family finances. There are still a number of ways assets can be hidden from spouses through instruments such as trusts and nominee companies. If someone has malicious intent, and you have not shown an interest, you will pay a financial penalty.