Divorce often turns people's lives upside-down. Most must adjust to an entirely different lifestyle and get used to being single again. Divorce can have a huge impact on a person's financial situation, as well. People who are used to having two incomes now suddenly need to figure out how to live on one income. One of the first things many people do when faced with this new financial situation is to stop saving for retirement. However, it is crucial that people who have gone through a divorce keep saving. Following a few simple tips can help them do so.
The Importance of Retirement Planning After Divorce
Studies show that single people in the U.S. save less than married people. According to a Charles Schwab study, only 67 percent of single people save for retirement, as opposed to 85 percent of married people. Fifty-seven percent of the single people who responded to the survey acknowledged that retirement planning is more difficult without a spouse's income, assets, health insurance and long-term care insurance to rely on.
When a couple divorces, one of the things they usually divide between them in the property settlement are retirement accounts. Some make the mistake of thinking that these accounts will be sufficient to support them in retirement. Even if individuals do obtain retirement assets in the divorce, saving is still important. Only one income and savings will be available to support them in retirement, not a joint income and savings as they would have had if they had not divorced.
Tips for Retirement Planning After Divorce
Setting up a budget after a divorce can be difficult. It takes some time to adjust to living on only one income. However, those who have gone through a divorce can take some steps to ensure that they still save the necessary amounts needed for retirement:
- Deduct retirement savings from each paycheck first before paying other expenses-particularly if an employer offers a fund-matching 401(k) program; a good figure to save is 10-25 percent
- Pay off high-interest debt such as credit cards so that less money goes to paying interest on debt and more can go to savings
- Adjust the standard of living and try not to live paycheck-to-paycheck-make sure that monthly expenses are less than monthly net income
- Create an emergency fund-financial planning experts recommend six months' worth of expenses for a cushion in case a crisis occurs
- Purchase long-term care insurance to help defray the cost of a nursing home or an assisted living facility
Navigating financial issues after divorce can be challenging. People going through a divorce should not neglect their retirement assets and savings needs in the property settlement negotiations. If you are going through a divorce, consult with an experienced attorney who can discuss your situation with you and advise you of your options.
