Budgeting for Retirement after Divorce

Budgeting for retirement initially starts with the pension statement and Social Security check. Expenses like house payments, rent, food, utilities and regular medications come out. Medicare deductibles are automatically taken out of Social Security checks. Additional payments for health insurance may be taken out of pension checks or paid personally.

What is left over at the end of this process can be used for entertainment, trips or saved up for emergencies. If there are savings, any shortfall will be taken from savings or withdrawn for retirement plans like 401Ks and 403Bs. The process repeats on a monthly basis. Long term budgeting is the process of planning years ahead. Long term budgeting for divorced individuals must include planning for several key factors.

• Health insurance costs have risen at higher than the cost of inflation for more than three decades. Cost controls and federal mandates may slow the cost increases but will not significantly lower health insurance costs. Plan your expenses so that you can direct as much if not more money into paying for health care costs. If planning for divorce after retirement age, realize that you may or may not be eligible for your former spouse’s health plan and will need to seek health coverage on your own until Medicare is available at full retirement age.
• Long term care insurance ensures that someone without a partner can get help with day to day living if they are disabled after a heart attack, stroke or long term illness. With proper planning, long term care insurance covers the costs of nursing home care while preserving the family home to be passed on to children and savings for a special needs child.
• After divorce, sharing of pensions and retirement assets may be required. In simple cases, assets of retirement plans like the 401K or 403B will simply be rolled over from one spouse’s plan to the other spouse’s plan. However, divorce can necessitate getting the information on how to file for a former spouse’s pension, seeking Social Security benefits or paying alimony out of retirement income streams.
• Reverse mortgages have risen in popularity in funding one’s retirement. However, the home cannot be mortgaged without the consent of all owners in many states. Ensure that the house is in your name before seeking a reverse mortgage to raise money for retirement expenses. If a reverse mortgage already exists, the home may need to be refinanced to get the non-resident spouse off the mortgage.
• Helping children with college costs can kill retirement plans. If the divorce degree mandates helping with college costs, try to pay cash instead of taking on student loan debt for your children in retirement. Never borrow against your home or retirement plan to pay for college bills. They have a lifetime to repay the bills - and you have only your own income and a few years to plan for retirement.
• Don't bail out your children or other relatives when your own financial situation is precarious. As the book "The Millionaire Next Door" found, a parent's financial solvency is destroyed by financial outpatient care - and it undermines the young adult's self-sufficiency long term, too.
• When you live alone, a fully funded emergency fund grows in importance. If you are fully retired and living upon a pension, an emergency fund covers sudden expenses like medical bills, car repairs, a torn off roof or attending a funeral. An emergency fund also ensures that you can raise cash without tapping your home’s equity or drawing down your retirement principal used to generate your retirement income stream.