Money
The couple dividend: why singledom, divorce and widowhood can ruin your finances
The financial advantage of being part of a couple is real – and measurable. When you retire, the “couple dividend” saves you thousands of dollars a year in living costs – but here’s why it pays to plan for the awful ‘d-words’ of divorce, diagnosis or death.
By Alex Brooks
Australia’s retirement, superannuation and expensive housing rewards couples. It punishes people who go it alone and can be brutal for those who experience a grey divorce.
According to the Association of Superannuation Funds of Australia (ASFA), it costs $38,252.50 per person each year for a couple to live a comfortable retirement. But for a single person, that same lifestyle costs $54,240 a year.
That’s a huge difference – $15,987.50 more each year just to go it alone. At Citro, we call this saving the ‘couple dividend’.
This dividend may not be deposited into your bank account, but it shows up in lower living costs, shared electricity bills and the luxury of planning retirement under one roof, not two.
And like any good dividend, you don’t notice its true value until it stops.
When life changes – through loss, divorce, or illness – the couple dividend can disappear quickly, and with it the silent savings that once made everything just a bit more manageable.
Even in the happiest of partnerships, someone usually ends up going it alone.
Facing financial reality with eyes (and wallets) open
“I’ve never heard of the couple dividend, but that’s an interesting way to express it. I just celebrated my 44th wedding anniversary,” says Wayne Leggett, a certified financial planner who runs Paramount Financial Solutions.
“I managed to get it right the first time – and that’s definitely more good luck than good judgment,” Wayne laughs but there’s a truth bomb embedded in his words. Not everyone gets that lucky.
I tell Wayne that a financial investment advisor from the United States recently explained to me that the golden rule of successful retirement planning is to have one spouse and one house (and definitely no boats). It’s also to save more money than you spend.
“What was the old adage? Two can live as cheaply as one,” he says.
That might sound like a cliché about love but it’s also a hard financial truth – and it’s never been more important to plan around, especially if you’re over 50 and staring down the barrel of retirement with a mortgage, adult kids who will likely want financial help to buy their own home, and a relationship that might not get through the statistical tests of modern life.
Real life read: How Elizabeth Jane rebuilt her life after being blindsided by divorce at 50
The statistics on singles versus couples
Some of us don’t partner up at all. Some of us divorce. And for every couple that manages to stick it out for 40-plus years, there’s still the very real likelihood that one partner will eventually face life – and retirement – alone.
And that’s when the numbers and statistics can get brutal. Just ask Mitch Gibson, who lost her partner to cancer while aged in her 50s. She had to shut down her business to care for him and then look after her elderly parents.
Carers Australia says people who need to become primary carers lose an average of $175,000 in superannuation and $392,500 in lifetime earnings.
The reality is: it’s cheaper to live as a couple than as a single person. Much cheaper.
Most Australians barely plan for their retirement, let alone for the single years or the scary reality of a bad health diagnosis. Many assume that the partnership they have in their 50s will continue into their 70s and 80s – even though the odds say otherwise.
More than 1.2 million Australians are widowed. Most of them are women, who are widowed younger than men, live alone for longer, have less super and face greater financial hardship as a result.
It’s no secret that divorce is rising among older Australians, with the median age now 47 for men and 44 for women – the highest on record. One in three divorces involves a marriage lasting over 20 years.
How to reap the couple dividend, even if the unthinkable happens
Whether you’re part of a couple or recently separated or widowed, it’s worth doing a simple ‘what if’ financial plan.
Couples can insure against the risk of one partner having the misfortune of a bad health diagnosis by purchasing life or total and permanent disability insurance (often through their super).
“I’ve never met an insurance claimant who reckons they had too much insurance,” Wayne says.
“When we look at insurance, we’re going to be pessimists and load you up to the point where you go: OK, I’d be happy with that as a payout so I can live with paying the premium.”
Financial planning for retirement is very personal – what works for one person might not work for another.
The most important thing with any financial plan is that it passes what Wayne calls “the sleep test”. Have you adequately worked out all the ‘what ifs’, plotted your appetite for risk (including longevity risk) and understood how retirement income and superannuation actually works?
The paying the mortgage versus paying into super question
With more of us heading into our retirement years with a mortgage, Wayne says the biggest question plaguing most of his clients is whether to put their money into paying down the mortgage or contributing to super.
Most couples would naturally think paying off the mortgage should be prioritised – after all, a paid-off home is security if anyone suddenly becomes single. Yet Wayne urges people to look at the tax implications of this decision.
Option 1: Putting $1 into super (and claiming a tax deduction)
You contribute $1 to your super (via salary sacrifice or personal deductible contribution).
You claim a tax deduction for that $1.
The Super fund pays 15% tax, so the taxman takes 15 cents.
You’re left with 85 cents invested in super.
Option 2: Using $1 to pay down your home loan (extra repayment)
To have $1 in your hand after tax, you need to earn more, because:
For an average taxpayer, tax is around 40% (marginal tax rate).
So to make a $1 extra repayment, you must earn $1.67 before tax:
The taxman takes 67 cents of every $1 you want to repay your loan with.
Wayne says couples will still ask him “how will I pay off my mortgage if I put the money into super?”.
“I tell them ‘with all the extra super you’ll have when you retire’,” he says.
“If people say, ‘I wouldn't be comfortable with that’ then I tell them to do a bit of both because there's no right and wrong. It's just what you can live with and what works best for you to sleep at night.”
And as Wayne says, “The most important facet in any financial plan is that it passes the sleep test.” Because whether you’re in love or out of luck, the bills still come – and they don’t care if you’re paying them alone.
Feature image: iStock/malerapaso
Tell us in the comments below: Did one or more of the ‘three ds’ (divorce, diagnosis, death) mean you had to reframe your finances late in life?
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