Preparing for Retirement When You've Gone Through a Divorce Saving for retirement is complicated enough on its own, but a divorce throws a wrench in the plans and might impact your timeline. As stressful as things might seem, a...

Saving for retirement is complicated enough on its own, but a divorce throws a wrench in the plans and might impact your timeline. As stressful as things might seem, a divorce doesn't have to put a dent in your savings or delay your retirement. You can prepare as scheduled if you take the right precautions. Here are some tips about preparing for retirement in the midst of a divorce.

How Divorce Affects Retirement

We won't beat around the bush: an untimely divorce can devastate someone's retirement savings. A 2018 study from the Center for Retirement Research at Boston College found that divorced households are seven percent more likely to not have enough money for retirement. Wealth and earnings are also typically lower among divorcees than in married couples.

The legal costs of a divorce can take a big chunk out of your retirement savings, and some people have to pay additional spousal support or alimony fees. Those living in community property states have to give up half of their belongings, including half of their savings (unless a prenuptial agreement specifies otherwise).

The financial aftermath of a divorce could set back your retirement goals by more than a few years if you don't make the right recovery moves. No one is prepared for a divorce, but you always need to have flexible pockets in case something goes wrong. Let's discuss how you can minimize a divorce's damage and stay on track.

• Acquire a Qualified Domestic Relations Order

If your spouse has an employer-sponsored retirement plan, then a qualified domestic relations order (QDRO) could be your saving grace. If you're not the main beneficiary, it's the only way to get a payout from a 401(k), pension, or similar plan. The non-participating spouse can send the money they receive to their retirement fund, making back some of the savings they lost in the divorce proceedings.

However, these orders take time and strict attention to detail to complete. The retirement plan administrator – your spouse's employer in this case – may have strict rules. Plus, you have to make sure it complies with the Employee Retirement Income Security Act and other state domestic relations laws. Your attorney could draft an order, but it might make more sense to hire an actuary who specializes in QDROs.

• Know Your Spousal Benefits

A divorce does not guarantee you lose your spousal benefits. If both of you are at least 62, were married for 10+ years, and have not remarried since, you and your former spouse are still eligible for one-half of retirement benefits from each other's Social Security record. The only catch is that you have to wait two years after your divorce to begin receiving payments.

Claiming these benefits does not hurt your ex-spouse or their new significant other. It simply guarantees that you don't miss out on the benefits of a long-standing marriage that ended just before retirement. You were together for a long time, so you're still entitled to half the benefits.

• Calculate Your New Retirement Number

Even with a QDRO and spousal benefits, your final retirement number will probably look different after a divorce. Consider these factors when calculating your new number:

• The value of your remaining retirement assets
• Your current income and expenses
• Current age and health
• Your expected post-retirement lifestyle

As a general rule, the later your divorce, the greater an impact it will have on your new number. Getting divorced at 35 leaves you time to increase your assets and income and cut back on your expenses, while a divorce at 55 leaves you a smaller window of opportunity.

• Update Your Timeline

The timeline of your original two-person retirement plan also might need updating. If you need to push back your retirement date to reach your new goal, then you have little choice in the matter.

If you don't push back your timeline, something else will get negatively affected. Your post-retirement lifestyle might suffer or you may have to work a part-time job.

You must choose between delaying retirement or sacrificing your desired lifestyle. Most people choose the latter. The average retirement age for Americans has been getting older for decades and divorce has been one of the primary contributing factors, along with student loans and a higher cost of living.

• Increase Retirement Contributions

A divorce partly depletes your contributions to your IRA, 401(k), and other pre-income tax savings, so you may have to set aside a larger portion of your income to make up for it. However, your financial situation might not allow you to immediately increase your contributions. Cost of living tends to be higher in single-person households since you need to pay for all the food, utilities, and other expenses.

You need to think in terms of dollar-cost averaging to get the most out of your investments and make small contributions. For example, if you add an extra $50 to your retirement savings every month, that's an extra $600 by the end of the year. Small efforts will help rebuild your savings, not a grand scheme. Just keep chipping away and don't look too far ahead.

• Tighten Your Budget

Naturally, the most effective way to increase your savings is to tighten your budget. Review your bank statements and recent receipts to identify any expenses you can remove from the picture. There are many creative ways you can consolidate your spending:

• Lower your electricity usage
• Buy from cheaper store brands
• Negotiate your insurance rates, cell phone plans, etc.
• Take a break from buying non-essentials
• Eat out less
• Reduce your TV subscriptions
• Stop using your credit cards

It can be difficult to balance these responsibilities, so you should take advantage of budgeting apps, savings calculators, and other resources to help you stay on track. These measures do not have to be permanent. They're only necessary as long as you need to set aside more for retirement. Once you regain the ground you lost, everything can go back to normal.

• Find New Income Sources

Sometimes a tighter budget isn't enough to balance out your finances. You may need to pursue new income sources. Thankfully, today's fast-paced world provides many additional income options that enable you to choose the hours. Here are some examples:

• Sell items on eBay and other online forums
• Have a garage sale
• Rent a spare bedroom on Airbnb
• Write an eBook or produce an audiobook
• Become a freelance writer
• Drive for a ride-sharing service
• Deliver for a food delivery app
• Become a dog-walker, housekeeper, or babysitter

You could also get a part-time job with assigned hours, but that might be difficult for those close to retirement who might not have the qualifications for a new job. These roles are less demanding and enable you to be self-employed, so they won't drastically change your daily schedule.

• Adjust Your Lifestyle

A divorce can force someone to significantly alter their lifestyle – especially if it happens close to retirement. You may have to get a new job, move to a smaller house, and cut back on vacation time, just to name a few big changes. While change is never easy, it's up to you whether the changes are positive or negative.

Many divorcees let their situations get worse by isolating themselves and taking on their problems alone. Don't be afraid to lean on your friends and family during your difficult time. Any lifestyle changes you have to make will feel more manageable with the right attitude and a strong support system behind you. View this new chapter in your life as an opportunity for growth.

• Remember Catch-Up Contributions

If you're over 50 years old, the IRS permits you to make a larger annual contribution to your tax-advantaged retirement accounts to "catch up" and make sure you retire on time. With a divorce tightening your finances, you need to take full advantage of these catch-up contributions and set aside more money.

All of the efforts discussed above (tighter budget, more income sources, alternative lifestyle choices) will help you add bigger chunks to your retirement savings. You could add as much as $7,000 and $17,000 to your IRA and 401(k), respectively, if you play your cards right.

• Talk to an Expert

A divorce doesn't guarantee later retirement or major life changes, but it more than likely will delay your plans. If you've crunched the numbers and your savings rate won't do the job, you might have to swallow the pill and push back your retirement date.

However, you don't have to rush to decide one or the other. Talk to a financial advisor and let them provide their perspective on your financial situation. Temporary sacrifices could enable you to retire on time, but you need to get an expert's honest opinion about your predicament to determine the best course of action.

Divorce Doesn't Have to Spell Doom

There's no such thing as a timely divorce, but it can be especially unfortunate and damaging just before retirement. You may have to change your timeline, save more money, find additional income sources, and alter your lifestyle.

However, by taking advantage of the benefits you qualify for and leaning on your loved ones, you can survive the divorce without significantly changing your retirement plans. Divorce doesn't have to spell doom, but you will only find solutions if you're willing to put in the recovery work.

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