Divorce creates mental trauma. The anxiety doubles when you have to deal with money matters as well.
Retirement is another subject that we all are worried about. We often wonder how much to save for retirement, where to invest, how to calculate the magical number, and so on.
Financial advisers say to save for retirement from the month you get your first paycheck. The earlier you start, the better you can take advantage of compound interest, and your retirement savings will grow to a lucrative amount.
However, it often becomes difficult to manage it alone. Moreover, the life expectancy of women is usually greater than men. So, they need to plan accordingly.
A few facts to divorced women need to know:
- Women usually earn less than men
- Women often have to take time off to look after their kids or aged parents
Therefore, when women get divorced ― in most cases ― they lose half of the household income than what they had in marriage.
Let us find out how divorced women can maximize retirement savings during and after a divorce.
How Divorced Women Can Maximize Retirement Savings
Get Legal Advice First
Many women think that getting a divorce without an attorney’s help and avoiding court intervention can help save them money.
It is advisable to compare attorney’s fees and select the most reasonable one.
Negotiate for the Distribution of Retirement Assets
Often, divorced women forget to negotiate correctly about the distribution of retirement assets during a divorce. Dividing retirement assets and protecting your assets during a divorce can help you.
Even if you haven’t done it before, this is the time to take charge of your household finances.
Look For a Suitable Income Source if You Don’t Have One
Try to ensure that you have a decent income to begin saving for retirement. So, if you don’t already have a job or way to make money, try to get one. You can start doing part-time jobs if you have to look after your kids or until you get a suitable full-time job.
If you’re already working a full-time job, look for options to increase your income.
Find Out the Target Number You Want to Achieve
You need to know your target retirement number ― that is, how much you need to save for retirement.
Consider a few things to calculate that number:
- How many retirement assets you have post-divorce
- Your age
- The age do you want to retire
- Your current income and how much you’re able to save
- How much you’ve already saved
- What standard of living you wish to maintain post-retirement
- Your assets
Assess Your Retirement Saving Options
The next step is to look for suitable retirement saving options to achieve your target retirement number at the right age.
If you’re working and your employer offers a 401(k) matching contribution, start depositing the maximum amount.
Apart from that, deposit into a traditional or Roth IRA (individual retirement account). Both offer tax advantages. Roth IRA allows free tax-free distributions when you withdraw at retirement. A traditional IRA allows partial or complete deduction of your contributions based on how much money you earn.
Also, consider your Social Security funds, though it’s better not to depend on them solely. You can start withdrawing from your Social Security from age 62, but you’ll get full benefits if you can delay it until age 70.
Once you get your target retirement number to achieve, plan your budget to save a significant amount every month.
If required, get a financial adviser’s help to plan your retirement if you can afford the professional fees. If you can’t, then discuss with a loyal friend or a relative who has sufficient knowledge and can guide you the best way.
Check Out the Inflation Rate
You have to take into account the inflation rate while saving for retirement. Use about a 3% inflation rate to calculate your target number at retirement. You can get the help of online calculators to do the required calculations.
Assess Your Healthcare Costs
As you grow old, healthcare costs are bound to increase. On average, a person spends more than 8.8% of income on healthcare between 55 to 64 years of age. The amount almost doubles by the age of 65.
In 2020, a health insurance policy’s cost was around $478 at age 40, which increased to about $1,123 for a person aged 64.
You can open a health savings account (HSA) without paying any tax on your deposit amount. However, you can’t open an HSA if you have another health insurance plan.
You can withdraw any amount from HSA ― tax- and penalty-free ― for qualified medical expenses. Also, you can withdraw the funds for any purpose after age 65 if you haven’t run into significant health issues. However, you’ll have to pay tax at the regular rate when you withdraw funds at 65.
Therefore, keep this in mind when planning for your retirement.
Look For Options to Save More
Saving always helps divorced women attain a financial goal. Therefore, assess your monthly spending and decide where you can cut it down.
For example, you can cancel magazine or streaming subscriptions if you don’t read or watch videos much. Likewise, go for a walk with your kids and avoid a gym membership.
By cutting down expenses, you will also teach your kids to budget and save money from a young age.
Have an Emergency Fund and Required Insurance Coverage
A financial emergency can ruin your retirement savings and push you into unmanageable debt. An emergency fund can help in emergencies. If you have a good amount in your emergency fund, you can meet your daily necessities for up to 6 months without an income. That is what financial advisers advise to save. So, try to save at least 5% of your income to build an emergency fund.
Likewise, even though you have to pay premiums, insurance policies can be a savior in times of need. Therefore, assess your and your family’s insurance needs and obtain adequate insurance coverage.
We interviewed some divorced women about retirement savings, and this is what they have to say.
One divorced woman said, “I had a retirement account through my employer but had to withdraw funds due to the divorce. I had to struggle to meet necessities with a single income just after the divorce. I have a child and faced financial difficulties since I had to raise her alone. However, after the initial struggle, I managed to save a decent amount for my retirement. One of my friends, Katherine, has helped me a lot. I had a lot of debt and took help from a debt relief company to solve my debt problems. After that, I have started saving for retirement. I want to say that retirement saving should be your priority, especially if you’re alone.”
Another respondent, Jasmin, replied to the following questions:
Do you have to struggle to meet your necessities post-divorce?
“Yes, I was struggling as a single parent with three kids. I couldn’t afford to apply for retirement. It isn’t easy to raise three kids as a single parent. I [lost in] court and had to pay court fees and lawyers, which I did. Now paying back debts to get caught up because one of the credit cards is under my name, and my ex-husband used the card. I am paying it back.”
Do you think retirement planning would have been easier if you were not divorced?
“No, I don’t.”
Do you have any tips for divorced women to save for retirement?
“Yes, everyone should always save for emergencies like this and others like being unable to pay rent or mortgages.”
When you have debts to pay off, how will you save for retirement? Often, people have to repay a significant amount of debt after a divorce. If credit card debt is what stops you from saving for your retirement, repay debt as soon as possible. You can opt for credit card debt settlement and repay debts with ease. Through single monthly payments, you can repay all your unsecured debts. After paying back debts, you can use your savings to save for retirement.