When you’re married, you’re generally planning for retirement for both you and your spouse—despite individually held retirement savings accounts. Most often, you each save to 401(k)s or IRAs but plan the retirement goals together. How much you save, where you save, and the type of investments are guided by the plan to achieve the overarching goals. Unfortunately, after a divorce, these goals abruptly change. You’re no longer saving for two, and while savings may be individually held, that’s not always the case.
We recently spoke with an investor who was newly divorced. Most of the retirement savings were in her husband’s name, which now leaves her behind in savings.
The first step to repair retirement savings after divorce is to reevaluate your plan. Compare where you are in your savings plan with your new goals and determine if you need to change your savings habits. This investor was only saving 5% of her salary to her employer-sponsored plan to get the company match. Remember, if your employer offers a matching contribution, this is free money they’re giving you just for participating. Don’t leave this on the table.
The second step is to increase your retirement plan contributions. Most investors will save to a 401(k) plan or equivalent, sponsored by their employer. In addition to a possible matching contribution, 401(k) plans have generously high contribution limits. In 2022, employees can save up to $20,500 or $27,000 for investors age 50 and older. These high limits can certainly help an investor make up for lost time in the market when saving later in life. Not everyone can reach these limits; however, you can maximize the benefit of your 401(k) by staying with your employer until you are vested, and all matching contributions are yours. If possible, consider diversifying with a Roth 401(k) contribution to have a mix of tax-deferred and tax-free savings. Pay attention to your asset allocation and rebalance periodically to keep your assets in line with your target allocation.
If your work retirement plan does not have a Roth option, you may be able to contribute to a Roth IRA for tax diversified savings. Single taxpayers and heads of households can contribute if their modified adjusted gross income is less than $129,000. Eligibility is completely phased out with MAGI above $144,000.
To make room in your budget to save more, look closely at the expenses you can control. If you kept the marital home, consider refinancing while rates are still low. Pay off high interest credit cards or consumer debt to save on interest payments. You may also cut memberships to clubs or subscriptions to services you don’t need. You may want to look for ways to earn extra income that will allow you to save more. Consider asking for a raise or apply for a promotion at your current job. You could also consider side gigs related to your profession or hobby. For example, teachers may tutor, and nurses may do medical transcription.
Working with an investment adviser can help you define your new goals and how to achieve them. You may not need an austere budget or a second job. The earlier you begin saving, the easier it should be to repair any dent in your retirement savings.
If you have questions or need help with your retirement planning, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166
Listen to the January 15, 2022 “Henssler Money Talks” episode.
This article is for demonstrative and academic purposes and is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
