The sustainability of life after retirement has become an increasingly salient issue, as Americans live longer lives, face higher medical costs, and deal with the reality of economic uncertainty as they age. Although a myriad of factors have contributed to the fact that more and more Americans are at risk of running out of money after retirement, primary among them the shift from workplace contributions to individual 401k’s, the effect of divorce on retirement income cannot be understated. In fact, recent research has revealed that divorce can have a significant detrimental impact on financial solvency in retirement for both parties, with an even greater negative effect on women. Understanding the significance of retirement assets during divorce, and planning appropriately for the aftermath, can help you to lay the foundation for a secure financial future.
According to a report from the Women’s Institute for a Secure Retirement, divorced women are unequally impacted during retirement when compared to men. For instance, while 4 percent of married men and 5 percent of married women live under the poverty line after age 65, 11 percent of divorced men and 18 percent of divorce women live under the poverty line after retirement. Due to many influencing factors, including lower salaries, inconsistent employment due to child-rearing, and a lower tendency to invest aggressively, the retirement income of the average woman is over $10,000 less than that of an average man. In addition, women who choose to divorce often have more difficulty re-entering the workforce and generating the same level of income as their male counterparts.
However, divorce negatively impacts both men and women during retirement, as retirement income is now necessary to provide for two residences, duplicate expenses, and the many costs incurred when living separate lives. As a result, men may also feel the financial repercussions of divorce as they transition to the retirement phase of their lives. What then, is there to do when confronting this reality during divorce? First and foremost, it is essential to remember that retirement assets will increase in value over time. Although it may seem attractive to access retirement money now, as opposed to later, the negative results of these decisions can be significant and far-reaching.
For example, in the division of assets process, some people may consider a buy-out from their spouse as a way to handle a shared retirement account. Unfortunately, liquidating a retirement account or 401k results in a negative tax burden, meaning you are required to pay taxes on the money as if it were income. By adjusting your single account to reflect two separate retirement funds, you can allow the funds to accrue value over time, tax-free.
Also, with the implementation of New Jersey’s Alimony Reform Bill in 2014, retirement is now considered justifiable grounds for terminating alimony payments. With this is mind, if you are awarded spousal support after your divorce, you must begin planning for a retirement during which you will not receive these payments. Your divorce attorney can serve as an invaluable asset during divorce discussions, ensuring that you are educated about all of your options, informed as to the benefits and drawbacks of each potential avenue, and guided to the resolution that best serves your interest.
If you are considering divorce in New Jersey or concerned about the implications of divorce for your retirement, contact the divorce and family law attorneys at Townsend, Tomaio & Newmark for additional information. We are pleased to answer all of your questions with a cost-free consultation. Simply contact our offices in Morris County at 973-828-0829 today.
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