Divorce And How It Can Affect Your Retirement Money
It’s the unthinkable that no aging person wants to face: divorce. The impact is huge on every aspect of your life, especially financially and the role it can play in planning for retirement.
Certified Financial Planners Gary Plessl and Kevin Houser, authors of The Book on Retirement: Are You Ready for The Second Half of Your Financial Life?, say there are plenty of things you can do to ease the financial impact of divorce on your retirement.
Their ten tips:
Establish a solid non-IRA cash fund to make sure you can weather a six- to 12-month storm such as an illness or job transition. Unfortunately, life has a funny way of throwing unexpected events at us at the wrong times, so be ready by having cash outside of retirement funds that you can access without penalty.
Change primary and contingent beneficiary information on all retirement accounts, insurance policies and all pension information.
Change your estate planning documents including any clauses that might relate to, “If I die, then this happens….” If you get divorced but forget to make these important changes, your ex will still be able to make these important decisions if you’re not able to.
Make sure that all Power of Attonrey (POAs) are revoked at all financial institutions.
If you’re over age 50 at the end of the year, utilize the catch up provision for 401(k) and IRA accounts. In 2015, for example, catch up provisions on 401(k) accounts is capped at $6,000 and for IRAs it is $1,000.
You may need to budget better to prepare for retirement. The best way to do this is to establish a hierarchy of what is important to you and allocate your dollars that way. Maybe it’s more time to travel, money for your grandkids’ college education or an extra cash reserve. Whatever it is, budget for and put away specifically for these items.
When it comes to a trust, remember that it is the trustees who must make the decisions about what happens to the property, not the settlors or beneficiaries. Carefully consider your future successor appointment and future trustee appointments.
Social Security and divorce: You will be able to claim the greater of either your personal benefits or half of your former spouse's, but you aren’t allowed to claim both. If you get married again, you can’t claim your ex-spouse's Social Security.
Establish your own credit: When you’re divorced, the last thing you want to do is keep joint financial accounts. Open your own bank accounts and get your own credit card and work on improving your individual credit.
Hire a financial advisor at the same time you hire a divorce attorney: Most people think about bringing in a financial advisor after the divorce. Let them work together to devise a fair settlement for both parties.
For more information on Gary Plessl and Kevin Houser, click here. To buy The Book on Retirement, click here.