Divorce After 50 -

Common Mistakes That

Can Ruin Your Retirement

Beyond the emotional impact that divorce can have on couples of any age that decide to split, it can have a potentially devastating effect on the retirement plans of those who divorce later in life.  Divorce after 50 usually results in a loss of income for both parties, which can mean working longer to fund a single retirement.

A recent article at Forbes.com pointed out four common mistakes made by those over 50 who are divorcing that can ruin retirement plans:

Choosing the house over other assets.  For many people, choosing the family home in a divorce is more of an emotional than a rational choice.  If the housing bust of the last few years has taught us anything, it's that you can't count on a house as a nest egg.  Plus, a house is likely to cost you more as well in property taxes, maintenance and unexpected expenses like a roof or furnace replacement.    So don't automatically sacrifice retirement assets for a house until you weigh the costs.

Forgetting to consider the tax implications of retirement assets.  If you decide to divvy up retirement savings by one of you taking the 401(k) and the other taking the Roth IRA, you need to realize that these are not equal distributions.  Withdrawals from a 401(k) or traditional IRA will be taxed during retirement, while withdrawals from a Roth IRA are not taxed during retirement.  Therefore, the payout from the Roth IRA will be larger over time.

Rolling over a spouse's retirement account into an IRA after the divorce.  If you are under the age of 59 1/2 at the time of your divorce, you have a one-time opportunity to withdraw money from an  ex-spouse's 401(k) or 403(b) without having to pay the 10 percent early withdrawal penalty as long as those funds have been allocated to you under a qualified domestic relations order (QDRO).  If you do a rollover and need to tap the account early, you will have to pay the tax penalty.  And while it may be tempting to dip into retirement savings now, remember that you are eroding the nest egg that needs to last you for 20-30 years in retirement.

If you would like to have a talk about retirement planning, call our office today to schedule a time for us to sit down and talk. We normally charge $500 for a Family Wealth Planning Session, but because this planning is so important, I've made space during the first week of September to have a complete planning session at no charge. Call today and mention this article.

TAKING THE COMPLEXITY

Remember that old joke: How do you eat an elephant?  Answer: One bite at a time.  At the heart of that gag is the truth about how you tackle any seemingly complex task, taking it one step at a time so as not to overwhelm yourself.

 

Here are some tips on how you can reduce the complexity in creating an estate plan, from a recent Fox Business article:

Add up your assets.  Take into account your retirement accounts, life insurance, potential inheritance, savings, property ownership, etc.

Consider trusts.  Trusts are simply vehicles for protecting your assets from creditors - yours or your heirs - and from potential future ex-spouses.  They are also a great mechanism for maintaining your privacy and allowing your assets to pass to your heirs without the expense and hassle of probate, which can tie up assets for a year or more.  And they also help you and your heirs avoid estate taxes. 

Think about whom you trust to act as your agent(s).  You will need to appoint a person or persons to act as your agent through a power of attorney in case you are unable to make those decisions yourself, in the case you become incapacitated or have a terminal illness.  This applies for health care decisions as well as financial oversight. 

Realize what a will can and cannot do for you.  A will is the cornerstone of your estate plan, giving you the legal power to pass along assets and property to heirs as well as name a guardian for minor children and appoint the people you need to carry out your wishes after you are gone - i.e., who will administer your estate and who will safeguard your assets for minor children.

  

Many people neglect to create an estate plan because they see it as the proverbial elephant...too big, too complex.  But if you approach estate planning in a systematic fashion, it takes the complexity right out of it - especially with the help of a knowledgeable Personal Family Lawyer�.