How To Make Sure You’re Really Ready for Retirement If You’re a Divorcée

Natalia Lavrenkova /

Going through a divorce is a major life transition, and it’s a major financial one as well. And no matter what age you get divorced, it’s likely to have an effect on your retirement plan and strategy. In this “Financially Savvy Female” column, we’re chatting with Rob Stevens, retirement income specialist at TIAA, about how to fully prepare for retirement post-divorce.

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When transitioning from two incomes to one, what adjustments should divorced women make to their budgets to ensure they are still able to save for their retirement?

It’s a challenge when you go from two incomes to one, and you can find yourself in a danger zone after this stressful life transition. You want to make sure you’re not adding debt and making your overall situation worse during this transition.

Pay Yourself First — and Start Doing It Right Away

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When you go through something difficult like this, it’s easy to say, “I’ll start saving next year,” or “Once everything settles down, I’ll start contributing to my IRA or 401(k).” But the three words we always try to emphasize are “pay yourself first.” You want to treat savings as a need, and you want to make sure you’re saving and not putting it off.

For an example of how important compounding is, if you have someone who has a $50,000 a year salary and they contributed $100 a month for 40 years, on a 6% average return that’s $200,000. If that same person waited and only contributed for 25 years but did $200 a month, they would wind up with $140,000. That’s over 40% less. It’s so important to have that [savings] and build the rest of your lifestyle around that.

It’s especially important if you have a 401(k) that does a match. That same person who makes $50,000 a year, if they contribute 3%, that’s $1,500, and if the company is matching that, that’s $3,000. That’s a really big difference that you don’t want to leave on the table. You can also take advantage of a lot of 401(k) [plans] that do automatic 1% increases each year, so you can gradually increase your contributions without it being too much of a pain. You want to make sure you’re taking advantage of compounding over time.

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There are also a lot of good tools out there through your 401(k) provider where you can play around with different amounts, different asset allocations and different retirement ages, and get a feel for if you’re on track to be where you want to be at retirement. So take advantage of those.

Look for Ways To Cut Back on Discretionary Spending

Identify needs versus wants. You want to make sure that you’re including savings as a need, as well as your rent or mortgage, utilities, groceries and gas. Get a good feel for that, and then separate that out from things like restaurants, entertainment and travel. You want to compare that to all of your cash flows, whether it’s from alimony, child support and/or salary. Any cuts you make, you want it to be from those discretionary expenses.

Take advantage of technology. Expense trackers on your smartphone can be so helpful. They pull all your expenses from credit cards and checking accounts and show them all in one place. They categorize them and you can compare month to month, so if you had a month where you spent a little more on restaurants than you thought you did, you can see that and course correct.

Dig into your budget and cut out things that you’re able to cut out. For example, bring your own lunch to work more often, brew coffee at home, cut out the three streaming services you got during COVID, have friends over for dinner. Obviously, that’s an important support network at this point in your life, but host dinner instead of going out to restaurants. Do some things yourself, like washing your own car. All of these things add up and they can make difference.

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Seek Professional Help

It’s a great time to take advantage of help from a financial planner. A lot of employer plans like a 401(k) offer that, and it’s definitely worth talking through a Zoom or the phone and covering your goals. A lot of times they could run different scenarios to make sure you’re on pace to meet your goals. It’s a great stress reliever to feel like you have a plan. You’re going through this difficult transition, and they can keep you on course.

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What other benefits or tools should divorced women tap into to help them prepare for their retirement?

You really want to take a look at your employer benefits. In a lot of cases, people are only using one spouse’s benefits package, so it’s a great time to take a look at what your employer offers in terms of healthcare options, prescription drug coverage, life insurance, dental [coverage] and wellness programs.

A lot of employee benefit programs also offer legal assistance, so if you pay a small monthly fee, you can get wills and power of attorney done for a very low cost.

Also, make sure you understand your Social Security spousal benefits, especially if you worked part-time or were a contract worker or an entrepreneur, or for whatever reason, you may not have a large Social Security benefit. [To qualify for spousal benefits], you have to have been married for 10 years, you have to be at least age 62, you have to be currently single, and if your spouse is not collecting benefits, you have to have been divorced for at least two years. That can be a very important benefit for someone who doesn’t have their own Social Security benefits based on a number of factors.

What updates should divorced women make to their estate plans?

The first thing that’s important for people to understand is what assets go through probate versus ones that are determined by designated beneficiary forms. Probate is the court’s revised process of settling the estate, but things like 401(k) [plans], annuities, life insurance, those types of things do not go through probate — they go through the designated beneficiary form that you typically fill out when you started the account. That supersedes a will. If in your will, you say you want your IRA to go to your two children but you said in your designated beneficiary form it should go to your ex-spouse, your ex-spouse is going to get it. So it’s very important you go through all of your providers and update those.

If you have a home and you want to avoid probate, you could do a living trust or transfer-on-death deed. That’s something done through an estate attorney. Any remaining assets are going to go through probate, so it’s important to update your will. If you don’t do that, it’s called intestate, and a judge is going to make a decision on your assets.

As part of an estate plan, make sure that you have a power of attorney. Your ex-spouse is someone you don’t necessarily want to make your financial decisions if you are in a car accident or something like that. You want to make sure power of attorney is updated. Also [designate] a healthcare proxy — someone that could step in and discuss medical claims and decisions if you’re unable to do so. A healthcare directive is important, and that deals with end-of-life situations. How do you feel about life support? Do you want to be kept artificially alive? Those are important things to spell out.

GOBankingRates wants to empower women to take control of their finances. According to the latest stats, women hold $72 billion in private wealth — but fewer women than men consider themselves to be in “good” or “excellent” financial shape. Women are less likely to be investing and are more likely to have debt, and women are still being paid less than men overall. Our “Financially Savvy Female” column will explore the reasons behind these inequities and provide solutions to change them. We believe financial equality begins with financial literacy, so we’re providing tools and tips for women, by women to take control of their money and help them live a richer life.

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About the Author

Gabrielle joined GOBankingRates in 2017 and brings with her a decade of experience in the journalism industry. Before joining the team, she was a staff writer-reporter for People Magazine and Her work has also appeared on E! Online, Us Weekly, Patch, Sweety High and Discover Los Angeles, and she has been featured on “Good Morning America” as a celebrity news expert. 
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