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When people get divorced, their immediate concerns are similar:
Where am I going to live?
How am I going to get by financially?
What will happen to my kids?
Am I going to start another relationship?
However, although the above issues are extremely important, they can cause one other issue to fall by the wayside—your retirement plans. During your property division, it is vital that money later doesn't become less important than money now.
The Truth Is in the Numbers
An ING study conducted in the United States found that women especially have difficulty saving for retirement during and after a divorce. Women who are divorced have on average $34,000 less saved for divorce than their ex-husbands, while divorced men and women have $11,000 less saved for retirement than their married counterparts.
A recent study conducted by the Phoenix Group in the United Kingdom found that 19 percent of women stop putting money into their retirement accounts after a divorce altogether and that another 25 percent reduced how much they were putting towards retirement. A shocking 38 percent of divorced women aren’t clear on their financial settlement after a divorce or their retirement savings.
Saving for Retirement Is Vital After a Divorce
How can you make sure to save for retirement, even with so many other changes happening in your post-divorce life? Financial experts suggest making a budget that includes savings—even if you cannot save as much as you did when you had a partner. Also, calculating how much you will need for your retirement will help you develop your strategies and goals. Finally, you should remember that you may need to save more for retirement since you may be solely responsible for paying for elder care, housing, and other needs as you age.
It is difficult to think about retirement during your divorce—so much of your life is changing, and you and your family have a number of pressing, immediate needs. At the same time, you are probably feeling the financial stress as you make the transition from married life to single life.
However, forgetting—or not caring—about your retirement can be an extremely costly mistake. Handling your retirement funds incorrectly can also result in major problems in the years to come. Below, we’ve shared four common retirement mistakes made by divorcees:
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Focusing on the house instead of the 401K – Women with children especially make the mistake of giving up other assets in order to keep the marital home. This can be a big mistake for a number of reasons, but mostly because getting the house often means losing the retirement account. If you are trying to keep the house for sentimental reasons—or simply because staying would be easier in the short run—think again.
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Not thinking about taxation – Some retirement accounts, like the ROTH IRA, tax the money before you put it in, others, like the traditional IRA, tax money when you take it out. When you are divvying up retirement funds, be sure to keep this in mind.
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Taking too much out of your retirement accounts – It may be necessary to dip into your retirement funds to pay for the costs of the divorce as well as the costs of starting a new chapter in your life. But don’t take more than you need. Too many people see the opportunity to take money from their accounts without penalty and end up hurting their nest egg.
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Not recalculating your retirement needs – Your retirement goals and needs are very different when you are single than when you are married. Be certain to recalculate how much you will need and how much you should save after a divorce. Think about where you want to live, what you would like your quality of life to be, and what your long-term health and care needs may be.
