Divorce after 50 affects your retirement plans significantly. It is the catalyst to a longer tenure at your job. In an ING U.S. study about marriage and money, divorced couples feel more unprepared financially for retirement than those couples who are married. On average, a divorced couple saves $11,000 less for retirement than married couples.
The ING U.S. study showed that divorced women actually had $34,000 less than divorced men in total retirement funds. For men, they are unsure if they can retire on the expected date they initially planned for. Men would have to go into their retirement savings if his divorce proceedings require him to pay for alimony, child support, or share household expenses.
To reduce withdrawals from your retirement fund, you should assess whether or not your current house is what you really need. Your house has more consistent and unexpected expenses that you may not know will give any return of investment. Your house is also more difficult to use to finance your retirement. Also, you have to consider the tax consequences of your home versus other financial assets.
While it may seem like a good opportunity for divorcing couples under the age of 59 ½ to withdraw money from their ex’s 401 (k) or 403 (b) without owing the normal 10% tax penalty, you will actually end up using that money to pay for unavoidable divorce expenses. It is better to withdraw than to rollover your ex’s retirement money. If rolled over into an IRA then use that money to pay for your divorce, you will be charged to a 10% early-withdrawal penalty if you’re under 59 ½.
Avoid using your retirement savings as much as possible. Even if there is a tax penalty waiver, that doesn’t mean that you won’t need that money later down the road. Retirement savings are meant to be lived on for the next 20-30 years after you retire. If you do receive a retirement account in your divorce, figure out your cash flow and budget to see how much you will need for retirement. In doing so, you are able to prioritize your withdrawals and spending money.