4 Steps for Keeping Your Retirement Savings on Track After a Divorce


When it comes to love and marriage, there’s an unfortunate truth: happily ever after isn’t guaranteed.


While the National Center for Marriage & Family Research puts the U.S. divorce rate at its lowest point in 40 years, research conducted by University of Maryland faculty suggests that 52.7% of all marriages will end in divorce. At the heart of that trend are an increasing number of divorces among the Baby Boomer set.


With more than half of marriages ending in divorce, that leaves many people searching for answers to their new financial situation. When it comes to saving for retirement, divorce presents some unique challenges. If you’re in this situation, consider these steps to increase the size of your nest egg.

1. Calculate your target retirement number

The first step in mapping out a retirement plan post-divorce is to determine how much money you actually need to retire. There are a few things to consider here, including:

  • The value of the retirement assets you were left with after the divorce
  • Your current income, expenses, and savings rate
  • Your age
  • The standard of living you expect to maintain in retirement

Your age can dictate how many assets you have and how much time you have on your side to catch up to your target retirement number.


Consider this example: Let’s say you’re 35 years old and you have $200,000 saved in various tax-advantaged retirement accounts. You’d like to retire by age 65 with $2 million in assets and you make $100,000 a year. To hit your goal, you’d need to save approximately 10% of your income over the next 30 years.


Now let’s assume that you’re 50 years old, you have $500,000 in retirement assets, and you’re making that same $100,000 salary. To retire by age 65 with $2 million in the bank, you’d need to save closer to 30% of your income.


It’s critical to know what number you’re striving to reach so you can tailor your plan appropriately and avoid falling short of your savings goal.

2. Evaluate your savings options

Once you’ve figured out how much you need to be saving, the next step is deciding where to put those funds. If you have access to a retirement plan through your employer and you haven’t joined the program, it may be a logical choice, especially if your company offers a matching contribution.


A 2015 report from Financial Engines found that employees who don’t take advantage of the match leave an average of $1,335 in “free money” on the table each year. Over a 20-year period, that could amount to nearly $43,000 in missed savings due to compound interest, according to the study.


Beyond that, there are other ways women can save for retirement, including a Traditional or Roth Individual Retirement Account (IRA). Both offer tax advantages, which are helpful if you’re concerned about your tax bill increasing after a divorce. With a Traditional IRA, for example, you may be able to fully or partially deduct your contributions based on how much money you make and whether you’re covered by an employer’s plan. A Roth IRA allows for tax-free distributions in retirement.


For 2017, the annual contribution limit to either type of IRA tops out at $5,500. (You can chip in an additional $1,000 if you’re aged 50 or older.)

3. Leave room for healthcare costs

Medical expenses can be a significant drain on your wealth as you grow older. Between the ages of 55 and 64, the average American spends 8.8% of their income on healthcare, according to the Bureau of Labor Statistics. By age 75, it nearly doubles to 15.6%.


Medicare can help counter some of the financial burden those aged 65 and older, but there’s one potential snag: it doesn’t cover long-term care. According to Genworth Financial, the median monthly cost of a private room in a U.S. nursing home in 2016 came to $7,698. By 2046, it’s expected to be $18,685. Prices vary by state, so do some research to find out the cost in your state.


The U.S. Department of Health and Human Services estimates that women require long-term care for 3.7 years on average and 2.2 years for men. When you look at the numbers, the possibility of needing long-term care — and the blow that it could deal to your net worth — is something you should consider when planning your retirement.


Long-term care insurance can help offset the financial burden so you’re able to preserve more of your wealth. This type of coverage involves paying a pre-set premium upfront and it covers the cost of long-term care over a set period of time.


The premiums can be expensive, but if you’re worried about being a burden to your children or leaving a legacy of wealth for future generations, it’s an expense to consider. The younger you are when you buy the policy, the lower the premiums tend to be, according to AARP. If you’re already in your 50s, this may be something to think about now.


Another possibility is a Health Savings Account (HSA) if you’re enrolled in a high-deductible health insurance plan. With an HSA, the money you contribute is tax deductible and it can be withdrawn tax- and penalty-free for qualified medical expenses. If you don’t run into any major health issues, you can withdraw HSA funds for any purpose after age 65 (distributions are taxed at your regular income tax rate).

4. Look beyond your retirement accounts

Social Security isn’t a substitute for accumulating a sizable cushion of assets but it can be used to supplement your retirement savings. For 2016, the maximum monthly benefit for someone retiring at full retirement age was $2,639. The estimated average monthly benefit payable, however, was just $1,341.


When you’re looking at the long-term, it’s worth asking yourself at what age you will apply for benefits. It’s possible to receive Social Security as early as 62 but for others, full retirement age is closer to 66 or 67. Applying for benefits before full retirement age reduces the amount you receive; putting it off — until age 70, for example — increases it.


You could also see a bump in your benefit amount if you’re eligible to receive benefits based on your former spouse’s earnings record. You have to have been married for 10 years to qualify and be 62 or older and unmarried at the time you apply for benefits. Fortunately, you can claim this benefit even if your ex has tied the knot again.


If you’ve established a solid base of assets, Social Security might be a smaller part of your retirement picture, but it’s one that you probably can’t afford to overlook. Understanding when you can take benefits, how your spousal benefits work, and when the timing makes the most sense can be helpful if you want to maximize this retirement income stream.

More information

To learn more about how to save for retirement, Ask a Citizen at your nearest Citizens Bank Branch.


Disclaimer: Views expressed may not necessarily reflect those of Citizens Bank. The information contained herein is for informational purposes only as a service to the public, and is not legal advice or a substitute for legal counsel, nor does it constitute advertising or a solicitation. You should do your own research and/or contact your own legal or tax advisor for assistance with questions you may have on the information contained herein.