Ending a marriage can be emotional and full of challenges at any age, even if both parties agree it’s the right decision. When couples over age 50 divorce, they often face the additional task of supporting two separate retirement plans using the assets intended for their combined nest egg. If you find yourself in this position, the following steps can help you boost your savings so that you have enough money to last what could be decades in retirement:
1. Take advantage of catch-up contribution rules. If you are employed and age 50 or older, current
tax laws allow you to save additional money in your workplace retirement plan or IRA. Check IRS.gov or contact your financial advisor to learn the annual contribution limits for each account you own.
2. Work an extra year or two before retiring. Every additional year you spend in the workforce means you have one more year to save for the retirement you want to have. Many Americans are spending 20 to even 40 years in retirement, so the extra money you save can make a big difference on the amount you have to live on.
3. Delay claiming Social Security. Claiming Social Security benefits after divorce can be tricky. Bottom line: it’s worth exploring your options and choosing the best claiming strategy based on your full financial situation. If your former spouse earned a higher income, you may be eligible to receive benefits based on his or her employment record starting at age 62. In most cases, you may qualify if you were married for at least 10 years and you are still single. If you remarried, check the Social Security website to see if you are eligible (SocialSecurity.gov). If you decide to claim benefits on your ex-spouse’s record, keep the following in mind:
• You may claim benefits even if your former spouse is still working. To do so, you must be
divorced for at least two years.
• The benefits you receive will not impact the amount your former spouse (and current spouse
if he or she remarried) will receive.
• If your ex-spouse passed away following your divorce, you may still be eligible for widow’s
benefits. Check the Social Security website for eligibility requirements.
4. Save your alimony dollars. Spousal support is more likely to be awarded when long-term marriages end. If you are awarded alimony as part of your divorce, consider using it to boost your retirement fund. Alimony is often granted with conditions, including the possibility that the payments will stop if you remarry, so keep those in mind as you plan for your future.
5. Keep your retirement dollars invested. Amid a complex situation, it may be tempting to use your
retirement savings to meet immediate financial needs. However, doing so could jeopardize retiring
when and how you want to. Premature withdrawals from retirement accounts are an expensive short-term solution that triggers tax penalties and fees while reducing future retirement income.
6. Seek advice. Assemble a team of professionals who can provide guidance on how to best divide assets and plan for your future. If you have friends or family who have gone through a divorce, consider asking for a referral. Enlist an attorney or mediator who can help you navigate the legal system (keeping in mind laws vary by state), advocate for your interests and update your estate plan. Also, consult a financial advisor and tax advisor for advice on crafting your retirement strategy.
Emotional turmoil brought on by divorce can make it hard to prioritize your finances, but even in the midst of that it’s important to make sound decisions. Even if you’re eager to move forward with your life, take the time to evaluate your retirement plans thoroughly. When you have significant assets or a complex estate to divvy up, there’s too much at stake to rush the process.
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Cody Sims, CRPC, AAMS, AWMA, is a financial advisor and franchise owner with Ameriprise Financial Services, LLC. in Chattanooga, Tn. He specializes in fee-based financial planning and asset management strategies and has been in practice for 27 years. To contact him, ameripriseadvisors.com/james.e.sims, 423-648-2900, and 412 Georgia Ave., Suite 210, Chattanooga, Tn. 37403.
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