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Divorce is taxing on everyone involved, both emotionally and financially. After the split is finalized, you’ve got a lot of restructuring to do if you still hope to retire comfortably. Alimony payments, child support, and decreased income all have an impact on your budget and spending from there on out. Here are some elements and strategies to consider as you start the new chapter of your life.
Become Financially Literate
If you’re working with limited assets, then investments and strategic, high-interest savings are probably going to form the bedrock of your retirement fund. Understanding how these things make you money, how much cash they generate, and the long-term projections for their growth is essential.
Revise and Review
First off, review your divorce settlement and ensure any assets promised to your ex-spouse have been transferred. If you fail to comply, that could mean more time (and expenses) in court. Once you’re free and clear, it’s time to be sure you’ve revised your insurance beneficiaries and will. A divorce does not automatically terminate your ex’s rights to benefit from those arrangements. Name your kids or a close family member instead!
Now that you’re single, you have to budget that way. It helps to think of budgets as allowances rather than limitations. If you want to keep saving for retirement, it’s going to mean having cash on hand to tuck away. Even changes as simple as taking public transit rather than owning a car (if feasible), eating in instead of going to restaurants, and cutting back on excess spending on clothes or other non-necessities.
Understand 401K and Pension Implications
Get a summary of both your employment-related retirement plans. What kind of taxes are each investment and/or savings account subject to? When do you plan to take the money out? Was one of you paying into one of these accounts before marriage? Dividing by percentages, rather than dollar amounts, is usually the fairest way to divvy up your mutual savings. When it comes to pensions, one spouse can buy out the other, or it can also be divided by percentage.
Don’t Get Hung Up On The House
For both emotional and financial reasons, many individuals going through a divorce consider retaining possession of the marital house a victory. However, in today’s economy, this may not be the case. As more people want to live in dense urban environments, homes in certain locations are becoming an increasingly uncertain asset. A home is also an investment that requires upkeep, and that may cost you more in the long run. Further, choosing to sell the house and split the profits could provide both parties with the nest egg necessary to move on with success.
A well-diversified savings safety net is going to provide you the most security when it comes to retirement. This could include employment savings, investments, high-interest personal savings, bonds, or even a life insurance settlement if the time is right. Want to find out if you qualify for a life settlement to secure some additional funding for your nest egg? Check out our qualification calculator to see if a life settlement is a good option for you.