I am 56 and recently divorced. I got limited income and assets after a long marriage, and now I’m wondering how to prepare for retirement. I’m looking for a job after being out of the workforce for a long time, and have to rent a house after decades of being a homeowner. I have a limited portfolio. Where should I put the little money I have?
--Julie, Coral Gables, FL
Sorry to hear about your situation, Julie. Unfortunately it is all too common. Close to half of first marriages and around 65% of second marriages in the U.S. end in divorce, by some estimates. And the divorce rate for people over 50 continues to increase. Divorce sucks, even when it is for the best, and the money aspect of it always makes it worse. Estimates for the cost of getting a divorce range, but some experts peg the average at around $15,000. Without proactive financial planning (and a good attorney!), the long-term costs can be significantly more.
Divorce is typically harder on women than men financially. This is understandable, given the facts that men still tend to be the breadwinners in marriages (although women are catching up!) and women tend to take more time out of the workforce to be caregivers, putting them at a disadvantage when it comes to earning potential, Social Security benefits and retirement savings. Women also tend to earn less and have lower participation rates in employer-sponsored retirement plans than men when they are working.
These harsh realities do not bode well for us ladies. So we need to be better prepared. If you are recently divorced, going through it now or planning on it soon, follow this basic guide to help you have a more secure singlehood.
Give yourself time. Divorce makes your heart break and your head spin. Analyzing your finances and making potentially critical decisions should NOT be done when you are emotionally compromised. Give yourself time to grieve, process and refocus.
Consider a team approach. Legal, financial and tax planning can be overwhelming enough even when divorce isn’t involved. It may be worth the cost of working with professionals who can give you objective, personalized advice and at least remove that stress of figuring it all out on your own. Ask around for referrals who specialize in divorce planning and interview several candidates for comparison. Make sure to be clear on the potential costs upfront as they will need to be part of your updated budget (see below).
Take inventory. Calculate your current net worth (what you own of value minus your debts) and make a detailed listing of every asset and every liability. This should include bank and investment accounts, loans, outstanding credit card balances and property. Remember that you are typically entitled to a share of any savings that have accumulated or property that was purchased or gained value during your marriage (including your ex’s retirement accounts and any real estate).
Protect your credit. Make sure joint credit accounts are closed and that you have your own accounts set up. Also make sure that any outstanding joint debts have been settled. Check your credit report for confirmation and possible errors. Also know your current credit score.
Update your budget. Keep a close eye on your cash flow and create a detailed accounting of current income and expenses. Analyze your spending and look for opportunities to cut back, save more, and understand how much you might need to make up in income to live more comfortably, both now and in the future. You should probably also make peace with a “less is more” lifestyle.
Review your insurance. Update your property and casualty insurance policies to reflect your current needs. Also update beneficiaries on any life insurance policies and make sure you have health insurance in place, whether it is through an arrangement with your ex, COBRA or a new individual policy. If you are over 50, you should look into long-term care insurance if you don’t already have it. While the cost now may seem prohibitive, the future cost of long-term care could be overwhelming. Weigh the pros and cons carefully.
Revise your retirement and estate plans. Update any wills and trusts that may be in place and beneficiaries on all retirement accounts. Then reconsider your retirement goals (e.g. when to retire, where you will live and how much income you need to live comfortably in retirement). Keep in mind that if you were married for less than 10 years, you are not entitled to your ex’s Social Security benefits. Even if you were married for more than 10 years, chances are the price of divorce has caused you a significant setback in terms of retirement savings, particularly if you are over 50. So you probably need to think about retiring later, earning and saving more money in the meantime, and/or taking on more investment risk. For a fee, a financial planner can be very helpful in creating your new roadmap.
Explore earning more. Think about what you like to do and what you are good at. Network like crazy to find opportunities for work that is meaningful and leverages your particular skills. Volunteering for an organization or offering to work for free can help you gain contacts, knowledge and experience, and can often lead to paid positions.
Divorce at any age is difficult. Divorce later in life can be even more challenging because you have less time to catch up. The more proactive you are in having a post-divorce financial plan, the better off you’ll be. Good luck!