How to Plan for Retirement After Divorce
Getting divorced is never easy — emotionally or financially. Untying the knot often causes major financial shifts, even derailing your previously-on-track retirement plan. The challenge is often greater for women. At 65 years old, women are 80% more likely to be impoverished than men, according to a study by the National Institute on Retirement Security.1 This is largely because throughout their lives women make sacrifices, often putting family ahead of career and taking time off to be caregivers. But no matter where you're starting from, you can take steps now to help build toward a solid retirement and put a plan in place to set yourself up for a relaxed, financially-secure future.
First, if you're still in the process of a divorce, you should know that retirement benefits are not automatically split evenly between you and your partner. The law in most states typically considers any assets earned during the marriage to be marital property, which means you will need to legally divide those retirement benefits.
Start by compiling a list of all potential retirement resources earned by both of you throughout the course of your marriage. This could include 401(k) plans, 403(b) plans, and individual retirement accounts (IRAs). If you're not sure of the specific assets, compile a list of jobs where assets could have accumulated for either you or your partner. Your lawyer can use this list to locate retirement plans you may be unsure of.
From there, work with your lawyer to create a fair but comprehensive plan to divide those assets. Keep in mind that dividing retirement plans 50/50 isn't always agreed on by both parties, especially if you both have your own retirement plan. Often, retirement plans are totaled together and then split, a process known as “equalizing."
If you're age 50 or older, you can contribute up to $6,000 per year in catch-up contributions to build your retirement nest egg.
Making a new retirement plan
After the divorce, when you're single again, you need to make a new financial plan for retiring. Knowing how much you'll need to keep living the lifestyle you want through retirement can help you set goals and direct your investment strategy. To get a good estimate, start by looking at how much you spend — not how much you make — each year. Some of your expenses may change once you're retired — for example, you might downsize to a smaller, more affordable home or you might spend more time traveling. Regardless, this can give you a good idea of what you might need in retirement income.
If you're not sure, a good rule of thumb is planning to replace between 70% to 90% of your annual pre-retirement income. If you'll be receiving guaranteed benefits like Social Security, saving closer to 70% may be enough. If not, aim for 90%. Not sure what your Social Security benefits are? Try the Social Security Administration's quick calculator.2
Getting your 401(k) together
Contributing to a 401(k) can be a great way to build up a retirement portfolio. A 401(k) is a type of retirement plan offered by many employers. Self-employed people can also open their own 401(k). Most 401(k)s offer a variety of mutual funds with stocks and other investments managed by an administrator.
A 401(k) has two big tax benefits:
- First, your contributions are pretax, meaning you'll lower your overall tax bill at the end of the year.
- Second, any growth in your 401(k) is also tax-free until you start making withdrawals during retirement.
If you are participating in an employer-sponsored 401(k), your contributions are deducted automatically from your paycheck, so you'll never forget to contribute. Even better, many employers offer to match your 401(k) contributions, up to a certain percentage. Be sure to contribute at least to this cap to maximize this benefit. Otherwise, it's like losing out on free money from your employer.
Opening an IRA
If you don't have the option of contributing to a 401(k) — or if you want to save more for retirement than the 401(k)'s annual contribution cap — consider opening an IRA. Much like a 401(k), a traditional IRA is a tax-deductible retirement account that allows you to save for retirement by investing in stocks, bonds, and mutual funds. For the 2018 tax year, you can contribute up to $5,550 per year3 ($6,500 if you're 50 years old or older).
If you're nearing retirement age, there's still time to build a healthy portfolio through catch-up contributions. Catch-up contributions essentially allow anyone age 50 or older to make additional annual tax-deductible contributions to their retirement plan. Through 2018, you can make up to $6,000 in catch-up contributions4 to your 401(k), 403(b), or 457(b) — and up to $1,000 toward your IRA.
Talking to an advisor
A financial advisor can help you create a retirement plan and help you manage both your plan and your overall finances. However, if you're planning to seek help, keep in mind that not all advisors are created equal. For help with your retirement plan, look for an advisor who has a Certified Financial Planner (CFP®) designation. While a professional certification like a CFP is important, it's equally important that you actually like and get along with the financial planner you select. You should be able to trust that your advisor works in your best interest.
Once you've found some advisors you're considering, schedule introduction meetings to get to know them. Your advisor should make you feel comfortable, take the time to explain things, and answer all your questions.
Going through a divorce is emotionally challenging, but it doesn't have to derail your financial future. By taking small steps today, you can secure your peace of mind for retirement. And when you're ready to talk with an experienced financial advisor to help build your ideal retirement plan, Synovus is here to help. Give us a call at 1-888-SYNOVUS (1-888-796-6887.)
Important Disclosure Information
This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
- National Institute on Retirement Security, "Women 80% More Likely to be Impoverished in Retirement," NIRSonline.org, accessed June 2, 2018. Back
- Social Security Online, "Social Security Quick Calculator," SSA.gov, accessed July 6, 2018. Back
- IRS, "Retirement Topics - IRA Contribution Limits," IRS.gov, accessed June 2, 2018. Back
- IRS, "Retirement Topics - Catch-Up Contributions," accessed June 3, 2018. Back
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