I, myself, have never been in the position to divorce while retired (thank God). But I’ve had a high school friend who has been through this immense hell, and let me tell you, writing this article made me think of her experience. Divorce is NEVER easy, especially when you’re retired or close to retirement. If you’re about to hop on such a wild journey, then you could use a hand (a virtual one, of course). I hope that reading this will give you some good insights into what you have to do next!
There are more couples nowadays that decide to call it quits on their long-term marriages than ever. This phenomenon is also known as the “gray divorce”, and it can throw retirement plans into disarray. As advisors believe, careful planning could prevent the outcome of financial fallout.
Pew Research Center gathered a lot of data on this issue, concluding that divorce rates among couples over 50 years old have doubled since the 1990s. In the midst of such a difficult decision, those who are even more at risk are partners who might have chosen to stay at home to raise the family, who aren’t always, but most typically, women.
Divorce is even more disorienting for spouses who decided to put a hold on their career to raise a family, and they have little to no retirement savings or backup plans on their behalf. There might have been a mutual agreement at some point to give full control of the family finances to the one who brings more money into the household, so now they lack a strong foundation on which to build a new financial plan.
The wide majority of people must have a new plan up their sleeve, as the landscape will obviously change. Even if it sounds daunting, it’s very important to get a grasp on your finances, especially if you never had the family budget on your hands.
It will give you some sense of control, but also empowerment. Even if the pieces of advice we’re going to enlist below are specially made for anyone who’s currently facing a divorce after many years of marriage, some financial planners would recommend them to ANYONE who’s currently dealing with financial independence after a long hiatus. So here’s what you need to do:
Get a job (or stick to your job)
Stoddard added that one of the most common worries among spouses who stay at home is that divorce means financial ruin, especially given the fact that they don’t have earnings in their own name. However, this could only be a misconception. It seems that oftentimes, women devalue work around the house and caregiving.
You shouldn’t forget that this is nothing but a contribution to the marriage. When it comes to dividing your assets, there’s a lot of value there. Divorce courts might take that time and labor into account, especially when determining how much of a collective asset each partner might get.
The best thing you could do is to get a job, especially if it’s been a while since you’ve worked outside the home. Getting a job and sticking to a routine will help you move on and rebuild your confidence. If you’re returning to the workforce after a long period of absence, you need to really evaluate what your job skills are, but also what kind of pay you should accept.
As mentioned before, a paycheck isn’t the only reason why you should work. Until you reach your Medicare age (which is 65 years old), you need health insurance. At this point, it solely depends on your spouse’s health coverage, but also on the state where you’re currently living, so pay attention to these factors, because you might continue paying for your COBRA coverage for a certain amount of time, but not for long. In this situation, nothing compares with the coverage you might get from an employer, because it’s cheaper.
Maximize your Social Security benefits
Make sure you postpone drawing your Social Security check as long as possible, so you can maximize any spousal benefit you could get. If you were married for a minimum of 10 years, then you’re 100% eligible of getting Social Security benefits based on your ex-spouse’s work history.
This applies even more to the majority of spouses who don’t have any kind of work history. For these cases, it’s highly important to delay Social Security as long as possible, to make sure they get a bigger benefit. The best thing they can do is to try and maximize that benefit.
If you decide to claim it at 62 years old, you might get roughly 75% of what you could have gotten if you waited until your full retirement age. In fact, if you decide to wait PAST your retirement age, you will get “delayed retirement credits”, which will offer you even more. Trust me, you WILL feel the difference, as we’re talking about tens if not hundreds of thousands of dollars.
Set a retirement account in your own name
If you don’t have your own IRA, make sure you establish one before finalizing your divorce. You might need one of those tax-deferred retirement vehicles to fully deposit the retirement assets your spouse might give you, with no penalties.
You can claim that through a process known as QDRO, short for qualified domestic relations order, which is usually undertaken with a divorce order. With that kind of money, you should invest in a tax-deferred retirement account, rather than anything else.
Plus, you shouldn’t be afraid of seeking help from a professional, especially since we could agree on the fact that the stakes are high in these situations.
Use your real estate assets with care
If you currently own a home, then selling might be your best bet. While it could be a bit painful to leave the place you lived in for so many years, emotions should never stay between you and the best real estate decisions. That house is a very useful resource for your golden years, as long as you sell it and keep the money. Most people don’t know what to do with such a great asset, so they decide not to do anything.
Recalculate the whole budget
There’s a 2018 paper written by the Center for Retirement Research at Boston College, where is clearly stated that divorce is often correlated with a substantial increase in the probability of suffering a financial risk during your golden years.
The paper said that divorce has the power to erode household wealth in many different ways: The cost of legal representation and fees might have a short-term financial impact, such as the establishment of two different households, but also the doubling of all the attendant costs, might have a stronger impact on your standard of living, but also on the ability to save more money.
There’s also a brand new survey conducted by Fidelity Investments, which shows how more than 1 in 3 people who’ve been through a divorce declared that they are still financially struggling after five years. Even more, Fidelity discovered that many people who have been actively involved in household finances are struggling with financial stability after divorce.
In fact, they were shocked to find out how much it costs to live alone. Setting up a realistic budget might help you avoid unwanted miscalculations. You also have to include some savings in your financial plan. The best thing you could do is to start little by little and try building an emergency fund in time, even if you only start with $50 a month.
Also, there’s one thing you SHOULDN’T do, which is to start investing in a couple of risky asset classes, trying to make up for something you don’t have. As you have a shortened time horizon before retirement, you shouldn’t have more wiggle room to weather your outsized downturn or wait for subsequent recovery. Make sure you stay away from flashy investments, which might guarantee you high returns, and try sticking to the basic funds, that only track the bond markets and stock.
If you feel you could use some advice in other areas of your relationship, read this: 8 Dating Strategies for Senior Introverts