Are you over 50 and facing divorce? You are not alone. Among U.S. adults ages 50 and older, the divorce rate has roughly doubled since the 1990s, according to a Pew Research Center report.
Women who get divorced in their 50’s and 60’s and who are not the primary breadwinners in their families face particular financial challenges that younger women do not. There are fewer working years ahead and that means there is less time to build up a retirement account before having to withdraw from it.
Alimony, whether negotiated or awarded, may not last for many years if the former spouse who has to pay it only has a few working years ahead of him (or her in same-sex marriages). After all, one cannot expect a retired ex-spouse to continue paying the same amount of monthly alimony he or she could afford to pay when employed and at the height of his or her career. I always inform my clients that alimony can be reduced or go away completely so don’t count on it for very long.
With good planning, these issues don’t have to become obstacles for you. Before you negotiate your divorce settlement, you will want to consider your potential income sources once you are living as a single woman. You will also want to develop a budget so you can keep your expenses lower than your income. A divorce financial planner can help you in both of these areas.
If you are currently employed, can you work towards a promotion or seek additional hours? If your pay is capped, can you look for a side gig? If you have been out of the workforce for some time you might want to explore certification programs that are offered by your local university. Even a part-time job that brings in $10,000 a year can make a big difference to your budget.
Do you and your spouse own a brokerage account with stocks, bonds or funds? Will you be receiving cash proceeds from the sale of a house? If so, meet with a financial advisor. Ask her to run different scenarios for you on how much annual income can be generated from your non-retirement assets by investing in incoming-generating securities such as interest-paying bonds, dividend-paying stocks, real estate investment trusts (REITs), master limited partnerships (MLPs) and option premium. Several of my clients use investment income to pay their mortgages and other monthly expenses. The amount of investment income that can be generated will depend in large part on the amount of money you have to invest.
Do you and your spouse own a rental property? You may be thinking you want to keep that property after the divorce because it generates income. However, before coming to that conclusion you need to understand the expenses incurred by the property. How much is the mortgage? Is it a fixed rate or adjustable? How much is the annual property tax? What kind of maintenance will be required in the short and long term? You may find that you generate more income with less expense and hassle by investing in publicly-traded securities instead of real estate. Your financial advisor, certified divorce financial analyst (CDFA) or certified public accountant (CPA) can help you analyze this.
Are you or your spouse covered by a pension? Before you take steps to split it, find out how much lifetime monthly income it will provide, when you can start collecting it, and whether or not monthly payments will increase with inflation.
Since women who have a limited earnings history haven’t paid much into the social security system, they will likely be eligible for only a small amount of social security. There is good news, however. If you are divorced, and your marriage lasted 10 years or longer, you can receive benefits based on your ex-spouse’s record even if he or she has remarried.
If you wait until full retirement age (which varies depending on the date you were born) you would receive either your benefits or half of your spouses’ benefits – whichever is larger. There are some conditions, however. You must be unmarried, age 62 or older, and your ex-spouse is entitled to receive Social Security retirement benefits. If your ex-spouse has not applied for retirement benefits, but can qualify for them, you can receive benefits if you have been divorced for at least two years. While you are in divorce negotiations, you’ll want to know what your spouse’s benefits will be at full retirement age so you know what to expect for your own income.
Will you be receiving any retirement accounts in the settlement such as a Roth, SEP, Traditional, or Rollover individual retirement account (IRA)? Will you be receiving part of a 401(k)? If you are at least 59 and a half, you can withdraw funds without paying an early withdrawal penalty. You would have to pay income taxes, however, unless it is a Roth IRA. If you are not yet 59 and a half, you may be able to withdraw cash from a 401(k) without paying the early withdrawal penalty but income tax would still apply. Be thoughtful about this: if you start withdrawing funds now, the account may be depleted while you are still living and need money. Make sure you work with a financial advisor to determine how much income you can withdraw each year while still leaving principal to grow.
What if after exploring all potential income sources you still come up short? There is a simple solution: reduce your expenses. It may not be fun to downsize and cut out frills in your budget but it sure beats living in debt.
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