To say that divorce is tough on your finances is an understatement.
When you go through a divorce, it’s normal to let long-term financial goals fall by the wayside. Instead of thinking about retirement, you’ve probably found yourself focused exclusively on your immediate needs, like finding an affordable new home and handling all the bills on your own.
Between all the new expenses and, in some cases, splitting joint retirement assets, it’s no surprise that your retirement savings can suffer.
The key to recovering your retirement after a divorce? You’ll have to take these proactive steps to get your plan back on track.
1. Build a team
Going through a divorce means re-evaluating your finances from top to bottom. But you don’t have to do it alone. In fact, it’s better to find professionals who can guide you during and after the divorce.
Having a divorce financial analyst, a certified financial planner (CFP) and/or attorney in your corner can make all the difference. If you don’t already have trusted professionals, ask friends or family for recommendations, or do some research to find credentialed experts who specialize in divorce-related finances.
2. Make a new budget
Going through a divorce usually means a total overhaul of your financial reality. You probably have to manage household expenses on your own now, meaning your spending priorities need to shift ASAP.
If you don’t revisit your budget, you could find yourself overspending and taking on new debt. Instead of hoping the numbers work out, make a list of your new monthly expenses. You might have to make an educated guess about certain costs at first, so the best way to stay out of trouble is to err on the side of underspending.
If you need help working out the numbers, or help fitting retirement savings into the picture, you can set up a budgeting session with an NFCC-certified credit counselor.
3. Reevaluate your investments
Even if you received financial guidance before your divorce, you’ll need to take another look after everything is finalized.
When it comes to retirement savings, your asset allocation — meaning the way your investments are split up across different types of assets — probably needs to be adjusted to align with your new goals.
If your 401(k) or employer plan doesn’t offer an investment calculator, try using free calculating tools from NFCC-certified agencies such as InCharge Debt Solutions or Take Charge America to help you project how your savings will grow.
4. Review your Social Security benefits
Social Security isn’t meant to be the biggest piece of your retirement puzzle, but it’s still an important part.
After a divorce, you’ll need to reevaluate when you plan to start collecting Social Security. Most experts recommend waiting until age 70, that way you can increase your benefit. It’s also worth keeping in mind that, if you were married for at least 10 years and haven’t remarried, you could be eligible to claim Social Security benefits based on your ex-spouse’s record.
Before making any decisions, talk to a financial or tax advisor to understand the tax implications and confirm you’re making the best choice.
5. Be honest with loved ones
If your divorce left you in a tough spot, it’s important to be honest with yourself and your loved ones about your new reality. This may mean making tough choices, like cutting back on financial support for family members or putting a pause on vacation plans so you can afford rent and other necessities.
If your situation affects things like your child’s college tuition or an elderly relative’s care, be upfront about the changes. The key is to make new arrangements now, so that your setback doesn’t spiral into a bigger problem as you advance toward retirement.
