Divorce can devastate women’s retirement savings. How to rebuild
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Many people don’t think their marriage will end in divorce. However, separation can dramatically decrease retirement savings, especially for women.
Divorced or separated women over 65 had a median family income of $ 35,736 in 2016, behind men in the same category who earned nearly $ 38,000 per year, according to data from the Center for Retirement Research at Boston College. . This is lower than married men and women over 65, who in the same year had median household incomes of $ 67,404 and $ 64,524, respectively.
Widowed and never-married women and men also had less money to live on than their married counterparts, and women followed men in all categories.
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One of the main reasons for this is the gender pay gap, according to Geoffrey Sanzenbacher, associate professor of economics practice at Boston College and a member of the Center for Retirement Research. Women often take time off work to raise children or care for other family members, which can mean they earn less over time.
“It affects them forever, basically,” he said. In addition, divorced women are more likely to have children.
Of course, divorce has an impact on men’s finances as well, but generally less than it does for women. Here’s how women can start building their retirement savings after divorce, experts say.
Take stock of finances
In a divorce, the property accumulated during the marriage will be separated.
As a result of this process, it is important for women to ensure that the appropriate changes have been made, such as canceling joint accounts, transferring assets in their name, updating account beneficiaries, reviewing insurance coverage and updating inheritance plans.
Next, women should look at their budgets and rethink their current and future lifestyles, according to Linda Farinola, certified financial planner and president of PFG-Financial Planning and Management in Princeton, New Jersey. If they don’t have enough to make ends meet and save for the retirement they want, they may need to make cuts now, like selling a bigger house and buying a smaller one.
While changing your budget can be painful, especially if you have kids, it will help you in the long run if you’re able to save more, Farinola said.
“Sometimes you have to make choices that you don’t necessarily like,” she said.
According to Shweta Lawande, CFP and analyst at Francis Financial, a New York-based company dedicated to serving women, couples, and people going through divorce, another thing many women need to consider after divorce is their earning capacity. Returning to work or looking for a better paying job could make a big difference in the long run.
“A 45-year-old woman who is able to increase her salary from $ 50,000 to $ 60,000 per year will accumulate an additional $ 210,000 by the time she retires at 65,” she said. “If she were to invest that increase each month, the future value of her $ 10,000 increase could reach almost $ 420,000 assuming a portfolio return of 6% per year.”
Once you’ve readjusted your budget, be sure to set aside enough money to retire on time and with enough savings to cover your planned lifestyle.
The best way to get the most out of your retirement savings is to do it in an investment account that will grow your money over time. This includes an employer sponsored 401 (k) plan, which often comes with a matching fund, an individual retirement plan, or even both.
After a divorce, it’s also a good idea to review and adjust the risk level of any retirement portfolio you already have. Taking more risk can help you make up for lost time if you haven’t saved enough, while reducing the risk level of your portfolio will help protect your assets from losses.
Get professional help
A professional financial advisor or even a certified divorce financial analyst can help you sort your money and plan for your new future.
“For women who were not actively involved in their finances during marriage, it is important that they take the lead when it comes to planning and investing for the long term, on their own or with the help of financial advisors. ”Lawande said.
A professional can help you make sure you’re thinking long term and taking advantage of all the options available to saving for retirement, including how to manage and take advantage of Social Security. For example, some divorced spouses may receive benefits from their former partner, which means a larger monthly check.
Protect yourself now
For those who are not or have been divorced and are looking to remarry, the best thing to protect themselves is to stay involved in financial decisions, experts said.
“The spouses who handled the majority of the finances during the marriage have an advantage over the other spouse,” Lawande said. “Be aware of everything that is held as a couple, including the value, location and tax implications of those assets.”
In addition, married couples should make sure that they are saving appropriately for retirement for both people, instead of saving for one person or relying on future income to put more aside. In the event of a divorce, this means that the division of assets will put both parties in a better position.
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