Funding Retirement After Divorce

By November 23, 2016Divorce, Retirement
gray divorce women

Too many people after getting a divorce fail to take a careful assessment of their financial position as it relates to the rest of their lives and their ability to care for their basic needs, let alone luxuries.

Younger parents who divorce have much longer to retirement, but they also have more potential expenses – child support and child-related expenses, spousal support, a reduced savings and retirement account. Younger divorced individuals need to decide how to balance between paying current expenses and replenishing savings and retirement. One possible choice would be to become more aggressive in retirement fund portfolios, knowing that short term losses will be less important than long term gains. But those retirement assets may also serve as a safety net or collateral for divorce-related expenses, so that might mean a more conservative approach or the ability to have more liquidity.

Older divorced individuals face more difficult choices because the realities of retirement may be only a few years away. A 62-year-old divorced man or woman has to determine how to make up for any lost retirement savings, but also to determine what standard of living he or she can sustain through retirement.

Older divorced persons should immediately determine if they can afford their present lifestyle, and if not, begin to downsize. Evaluate the fixed income stream, including Social Security benefits, and allocate a certain percentage for continued savings. Also, consider making regular payments into a Health Savings Account (HSA) to have on hand to pay medical expenses that as we age tend to pop up unexpectedly. HSA contributions act as pre-tax dollars, lowering your taxable income while also building up a health nest egg. In the same vein, consider purchasing long-term care insurance, as the disability provided by Social Security will likely fail to provide an adequate standard of living. As far as retirement funds, consider moving to more liquid or conservative funds to be sure any market fluctuations do not render you suddenly unable to meet your regular needs.

As you can see, the sudden shift associated with divorce has a ripple effect on financing your life post-divorce, especially if you are nearing retirement age. You will need to take serious steps to make sure you can protect your standard of living and guard against a sudden health emergency. Only careful planning can get you through this phase. As we have mentioned in previous posts, the best step you can take is to account for these issues before your divorce becomes final.

If you have questions about funding retirement after divorce, contact us – we can help.