Women often experience unique challenges when planning for retirement in the aftermath of a divorce. Whether you are a woman in Arizona currently preparing for, in the midst of divorce proceedings, or your divorce is final, here are some essential insights on retirement planning to help you envision your future with confidence.
As a divorcee myself, I had to make a number of important decisions to secure my own retirement following my settlement. Although retirement planning can seem overwhelming or complicated on the surface, a qualifed and trustworthy financial advisor can help you create a plan that works for your unique situation.
First, Update Your Will and Estate Plan
Yesterday was the best time to update your will and estate plan, and right now is the second-best time. You likely do not want to include your former spouse as a beneficiary any longer, nor do you want them making healthcare decisions on your behalf.
Updating your estate plan includes changing beneficiary designations on retirement accounts and life insurance policies, selecting financial and healthcare powers of attorney, and perhaps creating a living trust, among other things. This will protect both you and your divorce settlement.
Take an Inventory of All of Your Post-Divorce Assets
During divorce proceedings, some of your once-jointly-owned assets may become your sole property. For example, you might receive investment accounts, retirement accounts, the house, and/or a vehicle as part of the settlement.
Take an inventory of all post-divorce assets in order to obtain a clearer understanding of the contents of your portfolio. This will better equip you to make more informed decisions when it comes to asset allocation and retirement planning.
Take an Inventory of Your Outstanding Debts
While you are taking inventory of your assets, be sure to also take stock of any outstanding debts. This might include a mortgage, car loan, student loans, or credit card debt.
You will want to know exactly how much debt you are responsible for so that you can factor this into your retirement planning.
With a financial advisor’s help, you can develop a debt payment strategy to help you eliminate these obligations over time while still leaving you enough money to support your lifestyle in the present and save for retirement.
Create or Update Your Budget (Spending Plan)
Once you have a clear and comprehensive picture of your post-divorce assets and debts, you can begin to develop or update your budget, or spending plan. A spending plan allows you to determine where your income will go each month.
Beginning with your total income, begin listing your expenses until each dollar is accounted for. Your spending plan should include a plan to save for retirement now, and a plan for how you will spend once you retire. For current retirement planning, some financial considerations could include:
- What retirement savings account is best for you—an IRA, 401(k), or Roth IRA?
- How much should you contribute to your retirement fund per year?
- What are the tax implications of retirement account withdrawals?
- Will you receive a pension or Social Security benefits in retirement?
- Will there be other major financial obligations later in your life such as children’s college expenses that you will have to pay for?
Some common retirement expenses include:
- Housing costs
- Healthcare costs
- Food and clothing costs
- Transportation costs
- Leisure and travel costs
With a financial advisor’s assistance, you can create an effective retirement strategy that incorporates both present and future plans to help ensure greater financial security over the long term.
Prepare for Lifestyle Adjustments if Necessary
For some women, retirement planning after divorce might require making some lifestyle adjustments.
This is particularly true if you have been out of the workforce for an extended period of time or if your income was significantly lower than your spouse’s. In these cases, retirement planning might entail changes to how you live.
Making these types of adjustments can be difficult, but with proper planning, you can make the transition smoother and less stressful. An advisor can also help you better understand your retirement readiness and determine if any changes need to be made to your financial lifestyle.
You May Be Eligible to Receive Benefits from Your Former Spouse’s Employer-Sponsored Retirement Program
Does your former spouse have an employer-sponsored retirement account like a 401(k)? If so, you maybe awarded a portion of the account as part of your divorce. A Qualified Domestic Relations Order (QDRO) is a court order that allows the 401(k) plan administrator to divide the account and put your share under your own name., From there, you can leave the account there or roll into your own individual retirement account (IRA).
QDROs are not simple documents. They require rather specific language and legal expertise to ensure that they meet the necessary requirements for you to receive compensation. They must be drafted by an attorney or certified legal document preparer. By working with r a QDRO attorney and a divorce-informed CPA, you can receive assistance in drafting a compliant QDRO.
Prepare for Retirement Following Your Arizona Divorce Today
If you are preparing for, currently facing divorce, or have already completed your divorce and need assistance with planning for retirement, my team and I are here to help. At Bridge Divorce Strategies, we are dedicated to helping women like you face your post-divorce financial future with confidence.
To learn more about how we can help you, contact us today.