How to Prevent Divorce from Ruining Your Retirement Plans

Divorce is a major life change that can affect your finances all the way through retirement. It divides assets and, in some cases, assets may be awarded to only one person — making the other spouse more vulnerable.

Statistically, single adults have a higher risk of not having enough money saved for retirement. The Employee Benefits Research Institute and Greenwald and Associates conducted a Retirement Confidence Survey in 2016. They discovered that about 40 percent of unmarried women have saved less than $1,000 for retirement. Unmarried men also fared poorly, with 34 percent reporting that they had little in savings.

This compares to 22 percent of married women and only 12 percent of married men who said they were not prepared.

To combat this dire scenario, work with a financial planner as soon as possible to make sure you’re ready for your retirement years. The longer you wait, the less time you have to correct the situation.

Be Prepared: If you’re not already divorced, you will want to know where your money is and how much you have. Make copies of your bank statements and tax returns and work with an attorney and/or a financial advisor to get professional advice on big financial decisions. Determine whether you need to change beneficiaries on your life insurance policies, investments and wills.

Retirement Goals — Taking Stock: Take stock of your assets and figure out how much you have saved for retirement. Know exactly what debts should be paid off. Americans are living longer than ever. According to Geobase, a database published by Engineering Information, average life expectancy in 2016 in the United States is 79 years. That means you could easily live 15, 20 or more years after retirement.

Once you’ve established goals for your future and determined whether you have enough money, you’ll know whether:

• You’re on track,
• You need to decrease spending or
• You should work longer than expected before retiring.

Where you are on these three points depends in big part on how much money you have coming in on a regular basis and whether you have three to six months’ worth of expenses saved.

Revenue Possibilities: If you need it, you can take Social Security as soon as you are eligible. One avenue to pursue, if you were married 10 years or more and are age 62 or older, is to find out whether you are eligible for benefits based on your ex-spouse’s earnings. This only is an option if your historical earnings are lower than your spouse’s. If you decide on this option, you could claim the spousal benefit and then switch to your own benefits when you turn 70 years old. By doing this, you gain more time for your own Social Security benefits to grow.

Medical Expenses: While it’s fun to think about planning for vacations and pursuing hobbies during retirement, healthcare costs could easily eat up your budget. If you have to use your retirement savings to pay for healthcare, you might find that you no longer have enough money to cover basic living costs.

If your employer offers a Health Savings Account (HSA), you can use it to save for future medical expenses. Any money you put into the account is not taxed and any amounts you withdraw are not taxed, as long as you use them to pay for qualified health care expenses. You can roll over any unused funds to the next year, and earnings grow tax-free.

The downside is that you can only contribute through age 64. Therefore, you must put aside any savings you want to build for retirement while you’re still working. At age 65 or later, you can take withdrawals for non-medical reasons, and you will only pay income tax on the distribution.

To qualify for an HSA, you must be enrolled in a high-deductible plan and cannot be enrolled in any other health insurance plan.

Long-Term Care: Health insurance plans (including Medicare) do not cover nursing home expenses and other long-term care costs. Without long-term care insurance, you will have to rely on savings or Medicaid to pay for long-term care services. Medicaid does cover custodial care, so if you think your assets will be $100,000 or less at the time of retirement, you can qualify for Medicaid. Barring that, you should consider long-term care insurance. Long-term care insurers use medical underwriting, so if you will need coverage, it makes sense to buy it when you’re relatively young and healthy. Premiums are also lower when you’re younger, and climb as you get older.

With some careful planning, you can ensure a divorce doesn’t jeopardize your chances for a comfortable retirement.