It is a worry many have: Will I have enough to retire? A recent study indicates that many Americans may be in a precarious position when it comes to their future retirement. According to this research, in 2016, about 50 percent of working-age American households were at risk of not having enough to maintain their present standard of living when they retire.
It appears this risk is particularly high among divorced individuals. Specifically, the study found that divorce raises retirement risk by around seven points.
This underscores how important thinking about retirement issues can be for divorcing individuals. Understanding what impacts divorce could have when it comes to retirement can help divorcing individuals plan for these impacts. The following are three examples of things a divorce triggers that can impact a person’s situation regarding retirement savings.
The cost of divorce
The expenses connected to a divorce could cut into a person’s savings. These costs can get quite high if a divorce becomes long, drawn-out and contentious. So, keeping divorces from going this route is one of the ways divorcing couples can try to protect their retirement. Alternatives to divorce litigation, such as negotiation and mediation, can sometimes help with keeping the costs, length and contentiousness of divorces down.
New living expenses
The costs of the divorce itself are not the only expenses a person can face after a marriage breaks up. There are also the new expenses that come with living on your own again. Additionally, there can be new tax expenses, as some individuals get bumped to a higher tax rate after splitting with their spouse.
So, coming up with a new personal budget can be important following a divorce. This could help with keeping spending in check. This could prove helpful with many goals, including goals related to retirement savings.
Splitting assets, including savings
In addition to an increase in expenses, divorcing individuals also generally experience a decrease in the assets they have access to, as marital property is divided in a divorce. Retirement savings are among the assets commonly divided in divorces.
When dividing assets, it can be important for divorcing individuals to carefully consider how what assets they ultimately receive will impact their future retirement situation. It can also be important for them to give careful attention to the special issues that arise in relation to dividing retirement accounts, such as QDRO issues.