There is nothing quite like a divorce settlement to blow up a good, solid retirement plan. A divorce later in life can change everything, right at the wrong time. All of the years of saving and building a life together have suddenly come to an end, and the plans for a shared retirement crumble away. As well as an emotional blow, it can be a huge financial hit as well, and will leave your future looking very different from your original dreams.
Divorces later in life, or what’s now known as a gray divorce, are actually on the increase in the US at the moment. The financial negotiations around a gray divorce can be hugely complicated, especially when things like retirement savings and pension plans need to be divided. You may well find yourself accepting an arrangement which involves a fixed amount of money coming your way. So you’ll need to work out exactly how to make the most of those finite resources.
Make Smart Decisions with Your Divorce Settlement
It is common to feel overwhelmed during a divorce, and it can be even more devastating when you are approaching retirement or already retired. It is so important to hire a financial planner who can guide you through reimagining your new life and how to make the most of this closing chapter and the new beginning that awaits.
Right after a divorce is finalized, women may feel extremely vulnerable and unappreciated. We may want to splurge on items that will make us feel better. For many, this is a normal reaction; however, we need to be mindful of how we are spending our money and prioritize those things that mean the most to us.
As I am sure you know, living as a single person is usually more expensive. And it will be important to reboot your financial plan so that you can work toward your current goals while also getting your retirement plans back on track.
You can begin by making smart decisions that will help you decrease stress and build confidence in your new life. An advisor can help with more complicated bits and pieces, but it also involves some really simple steps. Here are my three tips to guide you to make the most of a divorce settlement.
#1: Think About Your Spending Plan
Before you start leaning on the credit card and making some big ticket purchases to make yourself feel better (don’t worry, we all do it), think about how much better it be to have that secure feeling that comes from having savings in the bank, and no credit card debt. Work out your monthly budget and think about what experiences mean the most to you. Add more funds towards those meaningful experiences by cutting some of the less important expenditures.
What brings the most value to your life? Where should you allocate your money to really help you enjoy life and feel good? Are you spending money on items you don’t need? Do you still have subscriptions you don’t use anymore? Are you grocery shopping at The Fresh Market just because it’s close by, instead of Trader Joe’s, which is less expensive but slightly further away?
Look at what’s become a habit, and what you can change. Contemplate what’s going to bring most meaning to your life. You may well want to keep taking the family vacations because you value the time with your loved ones and the escape to the beautiful beach house. With smart and well thought out decision making, you can enrich your life, while still living within your means.
#2: Reconsider Your Assets
Sit back for a moment and take stock. Once the dust has settled, take a look at what you own. Think about what you can afford to keep and what you will need to sell. Cast away those things that you feel hold you back from enjoying your new life to the fullest.
One of the biggest mistakes I see newly single women make is holding onto their marital home because of the emotional attachment or the fear of making a change. And I understand that – believe me, I’ve been through a divorce. But sometimes, when your home is your largest asset, the cost of keeping it may work to your disadvantage in the long term.
This is one of the most important discussions that you will need to have with your financial planner. You will want to know the pros and cons of your different options, so that you can make a well informed decision.
For instance, the house may feel like a really good part of the deal, but it could possibly be an unnecessary burden. Maybe it just feels too big to maintain – and too costly to keep. Consider downsizing. You could add a significant amount to your retirement savings by releasing some equity, while at the same time enjoying a smaller home that totally reflects the new you!
For example, meet Sue, one of my clients. She received the marital home in her settlement. It was worth $600,000 and had a mortgage on it of $100,000. A smaller home with a courtyard suited her needs and her budget more. She sold the marital home, purchased a new home outright for $250,000 leaving her mortgage free.
If you already have a career, is it possible to enhance your skills, or apply for a promotion? If you can increase your income at this stage, you can offset some of the losses from the divorce. This will help to boost your lifestyle now, as well as increase funding for retirement. Or maybe you can just look for a change to help you feel refreshed and positive about your new circumstances.
#3: Re-Evaluate Your Work Options
Think about increasing your own earning potential. If you’ve been a stay-at-home mom, spend some time thinking about what skills you have or could develop to find a job. Take small steps to start with, but dream big. You never know what doors could open for you. It could be great for your self esteem and also make you feel more in control financially.
If you’ve done any volunteering, or helped with any school events, don’t forget that this can all be valuable experience. Be imaginative, and package your skills in a way that can be valuable to employers. Don’t shy away from asking friends to help with this, as they may have some helpful insights.
If you already have a career, is it possible to enhance your skills, or apply for a promotion? If you can increase your income at this stage, you can offset some of the losses from the divorce. This will help to boost your lifestyle now, as well as increase funding for retirement. Or maybe you can just look for a change to help you feel refreshed and positive about your new circumstances.
Be Wise – Make The Most of a Divorce Settlement
When your world has been turned upside down and your heart is hurting, it can be hard to deal effectively with all of these things. This is why it is very important to have someone you trust to guide you through these important steps so that you can make the wisest choices for yourself. Yes, your life will be different and there will be adjustments to make. But with time and perseverance you can lead a fulfilling and meaningful life.
If you’re in the process of negotiating a divorce settlement, or have just finished the process, and you feel like you would like some help with the many choices you will need to make, don’t hesitate to reach out. By working together, you can become more confident and make the most of this new chapter in your life.
