Divorce does not only hurt the heart, but also the wallet.
If you are facing divorce, retirement is probably the furthest thing on your mind, but it can cause your post-work plans to unravel quickly.
Last year, an AMP report revealed that it takes Australian divorcees at least five years to get back on their feet after a divorce.
Divorce also has serious consequences for living standards and retirement income later in life, leaving many worse off and some needing to work longer as a result of marriage breakdowns.
Even if your divorce happens decades before you retire, your retirement savings will likely take a major hit. This is because your current retirement savings are divided between you and your spouse. Also, because, at least temporarily, each household will revert to one income with the increased expense of living alone, resulting in less retirement savings than originally planned.
These factors result in divorced parents aged between 45–64 years of age having 25 per cent fewer assets than those who are still married.
What to do with the family home
If all your kids have moved out of the house when you divorce, the best option for both individuals may be to sell the family home and downsize. You may even be able to move to a cheaper suburb and put some of the equity you have built up in the property towards retirement savings. Trying to keep the family home may become too expensive for one person to maintain.
Changing your retirement plan
Once you know exactly how much retirement savings you will keep, it is time to make a new retirement plan factoring in the reduction of your existing savings and the reduction of the money you will be able to save going forward.
You will also have a new goal for how much money you will need in retirement, which should be lower than your previous goal when you were married. Consult a retirement calculator to help you calculate your new target.
Your financial life will be challenging on a single income, but with a clear goal to work towards and an expected retirement date in mind, you can see how much you will need to save. Even if you can’t make the figures work, you will be able to start small and work your way towards a time when your income catches up with your saving requirements. Once your lifestyle has recovered, you can save extra until you are back on track.
A divorce can also result in a lower income, particularly if there are children from the marriage and one of the parents has to spend more time looking after them. Sometimes in this situation you may have to reassess your retirement plans and set a more realistic goal.
The more realistic goal may mean that you have to work longer than you were expecting or settle for less in retirement, relying more heavily on the Age Pension than you may have envisaged.
Having the pension to fall back on means there is no need to panic, you will be able to get by, it is just a matter of readjusting your expectations.
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