Atlanta Financial Blog
Retiring Early Despite Unexpected Divorce
September 11, 2018
The incidence of “gray divorces,” when couples over 50 years of age decide to go their separate ways, has doubled in the last 25 years. During that same period, divorce among partners who are 65 or older tripled. Growing old together may be overstated.
When an existing client referred a friend of hers to us, that overstatement came to life for me. Our new client reported in from “Ground Zero” – she was going through an unexpected gray divorce. Struggling with health issues caused by work-related stress, she wasn’t sure how long she would be able to work to “make up” for the financial assets that were about to be lost in the divorce. In addition, she had a home overseas she wasn’t sure she would be able to afford after the split. Most importantly, she was concerned about how her impending divorce would impact the timing of her retirement. Her health depended on minimizing work-related stress as soon as possible.
Working with her attorney, we provided advice on the financial impact of several settlement approaches. For example, in her case, splitting her pension income versus creating an equitable settlement by combining other assets, such as her taxable and qualified retirement plan, was an option to consider.
With our help, she was able to reach an agreement through mediation, minimizing her legal expenses. The final agreement balanced her tax concerns against those of her soon-to-be ex-husband. She would use her retained Health Savings Account (HAS) to cover her ongoing medical bills. We helped her develop a spending plan that would meet her needs, with accelerated savings going into her retirement plan and HSA. In addition, we talked her through her housing issues and guided her through the process of obtaining financing when she downsized. Finally, we helped her sell her second home overseas. The proceeds of that sale replenished her depleted savings and helped her meet her goal of an early retirement. Because of her ongoing health issues, the timing of her retirement was critical. Being able to retire, on her timetable and with financial confidence, eliminated the ongoing impact of work-related stress on her health.
Divorce is never easy, even when it’s amicable. Having an integrated financial and legal team for counsel, can help pave the way for equitable settlements that set up both partners for success separately.
The Setting Every Community Up for Retirement Enhancement (“SECURE”) Act was signed into law on December 20, 2019. With all of the discussion in the news around the political uncertainty, impeachment, and the looming trade war, one of the largest changes to retirement savings laws in recent years was passed with very little fanfare. However, some of the changes will be significant. I have tried to highlight what may impact the majority of our clients and readers.
The Act has a lot of positives such as simplifying rules and making 401k plans potentially available to more workers, pushing back the RMD age, and allowing contributions to IRAs past age 70. The negative impact I see is the elimination of the stretch IRA which is a clear move by the government to raise tax revenues by forcing money out of inherited IRAs sooner. I will discuss in more detail below, but this should be a time to review beneficiaries and discuss whether any change in your legacy planning should be made in response to the new laws. What do you need to pay attention to?
A few months ago, I saw a sale sign in front of my neighbor Gina’s house. She’s lived on my street even longer than I have, so I was surprised that she was selling her home. I bumped into her a week later at the supermarket and asked her where she was planning to move. She told me (with some regret) that she was downsizing to a less expensive house. The alimony payments she’d been getting from her ex-husband had ended last year, and she hadn’t prepared for the loss of that income. She soon realized she could no longer afford to live in her home.
I’d like to believe that everyone understands the value in a year-end review of their personal finances. Statistics that I’ve seen indicate that over half of people who make resolutions indicate a change to household finances and saving money is a priority in the new year1. What is a bit of surprise to me is that so many put off (or neglect all together) actually reviewing their finances before year’s end. My conclusion: one of the biggest deterrents is the time it takes to get things organized.
When it comes to being successful with money, strong organization will empower you more than anything else you can do to take control of your finances moving forward. With my personal and professional understanding of the challenges of this process, I’ve put together an 8-step checklist to get your finances organized, take inventory of where you stand, and ultimately get you ready to close the books on 2019.