Michelle Buonincontri, CFP®, CDFA™
Originally Posted on April 28, 2017 | Investopedia
Why is this important?
Nothing kills a Retirement Plan- YOUR Financial Future – like a divorce. There are no student loans or government bailouts to help us. If you are like most, your divorce ends with debt. The last thing we are thinking about is retirement. I know, I’ve been there.
According to a report released by the National Institute on Retirement Security on March 1, 2016, 80% of women over 64 are already more likely to live an impoverished life than men.
So what’s a gal to do?
Cut Discretionary Spending
This might sound obvious, but life is not the same. The income that once supported one household may now be supporting two, and you may be entering the workforce again or for the first time. Things will need to change, and you are the catalyst for that change!
For example, renting instead of owning a home may make more sense, even if just in the interim to keep expenses down. We need to remove the emotion from our financial decisions and take a longer range view. (For related reading, see: Reasons Renting Is Better Than Buying.)
Take Advantage of Any Employer Retirement Match
Many employers offer workplace savings plans that match employee contributions—often up to 6% of your salary. Execute the strategy above so you may contribute enough to your tax-deferred employer plan to earn 100% of the employer match in a 401(k), 401(b) or 457 plan. Earning the match is like receiving a 100% return on your investment. Where can you find a 100% return? This will help your nest egg grow and boost your retirement security. Not contributing enough to utilize the employer match is like leaving free money on the table.
View Your Divorce Debt Like an Investment
Like a what? I know that intuitively does not make sense. But there are competing resources for paying off debt and saving. Start by comparing the interest rate on the debt to that of an expected investment return and the power of compounding of retirement savings.
If, for example, your student loan or mortgage has a before-tax interest rate of 3–5 % (which may be even less after a tax deduction) and you can reasonably earn 5% with compounding over a longer time horizon in retirement, it may make more sense to put money in your retirement account than pay off that debt early—always considering cash flow and remembering that market returns are not certain.
But if your credit card is charging 10%, put more money there. Once you stop paying that 10% it’s like earning 10%, because it is no longer being spent and is available in your budget for other items. Look at the interest rates you are paying like market returns that are leaving your pocket, and try to consolidate debt into a lower interest rate whenever possible. (For related reading, see: To Invest or to Reduce Debt, That’s the Question.)
Get in Touch With Where You Are in Your Story
What is going on for you right now, in this moment? Are you living in the past with regret, bringing the past into the present, or maybe even living in the future with fear? What messages have you taken in and believe about yourself? This can be scary. For me, being grateful for what I have, acknowledging a point of view or a set of expectations I have of a situation, or others that are coloring my perspective, is freeing. Once done, I can choose to see things differently and I can choose to take actions so that I may be the architect of my life.
When we are not blaming and we are choosing, it can be very empowering!
Yes, these are the basics. We need to lay the foundation before we can move onto planning strategies. Consult a certified financial planner for comprehensive advice on strategies that address your retirement planning needs.
(For related reading, see: How to Manage Your Finances Through a Divorce.)
Read more: “Rebuilding Your Financial Future After Divorce” April 28, 2017 | Investopedia https://www.investopedia.com/advisor-network/articles/rebuilding-your-financial-future-after-divorce/#ixzz5661GHNi5
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