A divorce’s financial impact can last for decades. Over the past 25 years, as the divorce rate among couples 25 – 39 years old decreased 21%, the rate of divorce among adults 50 and older rose 109%, according to Pew Research. (Divorce among couples ages 40 to 49 rose 14%.)
From suffering empty-nest syndrome to simply growing apart – whatever the reason couples choose to split later in life – you need to be aware of some special challenges that may require you to re-imagine your retirement plans. Here’s what to expect and how to prepare to keep your retirement dreams on track in the event of a separation in your golden years.
1. Savings Take a Hit
Even if your divorce happens decades before you retire, your retirement savings will likely be the first to suffer. Divorce usually means that the funds in your retirement accounts are divided between yourself and your ex-spouse, so your retirement savings will shrink substantially.
Furthermore, divorce means that you’ll become a one-income household (even if it’s temporary) so you’ll probably end up saving a lot less for retirement than you had planned.
2. Asset Division
Simple savings aside, figuring out how to divide assets that won’t be growing between two households can be a challenge.
Division of assets is contingent upon the laws of the state in which the couple resides. Generally speaking, determination begins with a valuation of assets: property, brokerage accounts, Social Security benefits and an evaluation of the desires of each spouse to hold versus liquidate certain assets. It’s also worth noting that some divorce income streams come with conditions. For example, a partner who remarries may no longer qualify for Social Security or alimony payments. All of which should be considered as the asset distribution is agreed upon.
Also consider your own risk tolerance when it comes to investing. Often, a divorced person finds that their investment portfolio’s asset allocation is more in line with their ex-spouse’s risk tolerance than their own. Make changes to your investment mix based on what’s appropriate and tolerable for you given your current savings level and lifestyle.
3. Building a New Retirement Plan
Once the above two steps of figuring out savings and asset distribution has been agreed upon, it’s time to start your new retirement plan.
The bad news is you’ll need to factor in both the reduction of your existing savings and likely the reduction of your future income. The good news is now that it’s just you, you’ll probably be able to set a lower goal for how much income you’ll need in retirement. (Check out our retirement calculators to make this process much easier.)
A fresh new start in life gives you the opportunity to flip your existing plans on its head. With the right strategy, your new retirement plan can be anything YOU now want it to be. So use this time to focus on what you want out of life – whether that be moving to a warmer climate or exploring shared living – this is now your time to do what makes you happy.
It’s all good to hear not to worry when facing a divorce older in life, but in reality the emotional and financial strain can be a lot to handle. If seeing your numbers on paper has you stressed, start small. By saving a smaller, realistic amount, you’ll be able to get by until your income catches up with your saving requirements.
If it comes down to it, consider delaying your retirement by several years so that you have more time to earn and save money. Once your lifestyle has recovered, you can do some extra saving for a while until you’re back on track.
The important thing is not to panic; divorce is not the end of your retirement dreams, just a detour on the road to financial independence.
Retirement Income Planning from CKS Summit Group
Preparation and financial planning during and after divorce can help you protect your financial interests and take charge of your future well-being. If you’re faced with the prospect of divorce in, or approaching retirement, CKS Summit Group are here to help. Our cutting edge tactical portfolios are designed to adapt to your evolving needs.
Contact us here today so we can help you with the complex financial decisions you face during a divorce and plan for your future goals.