The number of divorces involving Americans over 50 has increased dramatically over the last few decades; indeed, statistics regularly suggest that since 1990, the divorce rate for Americans between 55 and 64 has doubled and it has tripled for those 65 and older.
Beyond any emotional and personal difficulties that divorce near or after retirement can cause, the financial effects of divorce over 50 can be devastating. If you are faced with this situation, there are a few key steps you can take to reduce the financial impact of your divorce settlement.
Consider consulting with a financial planner
Facing retirement with the sudden loss of half of your income can be frightening, but working with a financial planner can help get you back on track for retirement. In particular, a financial planner can help you strategize the best way to deal with any martial debt that you may be compelled to take on while also working to make up lost retirement savings.
Take advantage of catch-up rules for your retirement accounts
Since your retirement accounts are likely half of what they were pre-divorce, taking advantage of the opportunity to contribute more to your existing 401(k) and IRAs is a smart move. As of 2016, the catch-up provisions for 401(k) accounts allow persons 50 or older to contribute up to $24,000 per year as compared to the $18,000 limit for those under 50; for both traditional and Roth IRAs, the yearly contribution limit is raised to $6,500 from $5,500.
Amend your beneficiaries and update your power of attorney
Changing the beneficiaries on your pension, retirement accounts and life insurance policies is an extremely important but often overlooked step post-divorce, particularly for those nearing retirement age. Beneficiary designations take precedence over wishes expressed in a will, even if that will has been modified since your spousal separation. This means that a failure to update your beneficiaries on your policies explicitly can mean that your ex-spouse receives your benefits in the event of your death.
Similarly, updating your power of attorney to place decision-making authority in the hands of a new spouse or an adult child can help to prevent conflict over matters of life and death. Failing to do so can mean that those persons you would want to make decisions for you in case of your incapacity could face a costly court battle with your ex-spouse to change your power of attorney.