Retirement and divorce: Some important considerations

For many people, the day that their divorce is finalized is the day that they may feel like they are truly free. However, this feeling of freedom may soon give way to feelings of concern as the months go by and it becomes increasingly evident that their financial footing may not be as firm as they thought it to be.

In particular, those people who divorce in their 40s or 50s may grow concerned about their ability to retire as their retirement accounts – likely split up according to the terms of a qualified domestic relations order (QDRO) – may have shrunk considerably.

In these situations, it’s extremely important for newly single people to take charge of their finances and plan for their future – a recent study by Charles Schwab shows that only 67 percent of single people are actively funding their retirement portfolios.

Today’s post will take a brief look at a few steps recommended by financial experts for effective post-divorce retirement planning.

Adjust spending habits: In the wake of a divorce, it is important to make the necessary adjustments to your spending habits as your expenses will remain largely the same, but your income will be smaller. Financial experts recommend creating a budget and avoiding amassing credit card debt, a strategy that can help set you up for success in the future.

Devote a portion of your paycheck to retirement: When creating a budget/making financial adjustments, financial experts recommend devoting a percentage of each paycheck to retirement accounts. Specifically, they advise that divorcees in their late 30s devote 15 percent, in their 40s devote 20 percent, and in their 50s devote 25 percent.

Take advantage of employer match programs: Financial experts frequently advise divorcees to resist the urge to stop investing in their 401(k) in order to increase the size of their paycheck. Instead, they recommend maximizing employer match programs, taking advantage of so-called “free money.”

Consider long-term care insurance: Financial experts also recommend that divorcees consider the purchase of long-term care insurance to help defray the costs of eventual nursing home care and to preserve retirement assets.

Stay tuned for more from our Ft. Worth family law blog …

To learn more about dissolution of marriage or property division, contact an experienced and skilled legal professional.

This post is for informational purposes only and is not to be construed as legal or financial advice.

Related Resources:

Daily Finance “Retiring solo: Too many singles and divorcees aren’t saving enough” Sept. 14, 2011