As I listened to my just-turned-fifty friend discuss the details of her divorce from her husband of thirteen years, I wondered if this was becoming the norm for this generation. We have all heard the statistic “50 percent of marriages end in divorce”, but I thought this was typical of the younger generations, not the baby boomers.
“Over the past twenty years, the divorce rate among baby boomers has surged by more than fifty percent, even as divorce rates over all have stabilized nationally,” according to the Gerontologist journal
Baby Boomers have most likely spent a large portion of their lives married, living the American dream with two kids, and the house, but now their kids are older and they are left with each other and often marital problems that were swept under the rug.
Divorce is no picnic at any age, I can attest to that, but for a baby boomer there are some pretty important financial decisions they need to make before agreeing to any divorce settlement.
The Marital Home or Retirement Savings
The age of a baby boomer is 48-66; they are according to their age, either in or nearing their retirement years. So this age group needs to be really conscious of making the right decisions when it comes to preparing and saving for retirement.
When you look at all of the assets acquired in a marriage, the two largest are typically the marital home and retirement accounts, especially with this age group.
So when your lawyer asks, “Do you want the house or the retirement money?” What will you say?
Many woman immediately gravitate toward the house, Why? Well the house has a sentimental pull that a retirement account does not. Most likely the children were raised in this home, and many happy memories are contained within it. Giving up the house means not seeing the kids bedrooms everyday, or the growth chart pencil marks in the pantry closet.
In order to keep the home you must consider:
- Can I afford to stay here? Maybe the home is paid off, but there are still taxes, maintenance, and utilities to consider.
- One income. The cost of the home will be your sole responsibility should you choose to keep it. Does your income support it?
- Giving up retirement savings. As I mentioned earlier retirement savings and the home are the two largest assets to be divided in a divorce. If you keep the home are you sacrificing your retirement savings?
As baby boomers near retirement they must be aware of the circumstances that lie ahead. Maybe the house is worth the trade, maybe not. If you opt to keep the home and are at risk of losing valuable retirement savings it is time to put the pedal to the medal with preparing for your retirement years.
Developing a Plan
It’s never too late to start saving for your retirement. Every dollar you put away today will help you after you stop working. Retirement income is typically comprised of private savings (such as an IRA), employer-sponsored retirement plans (such as 401(k)’s, pensions) and social security benefits. So if you are starting over after a divorce be sure to run the numbers to see just how much you should be setting aside for your future.
Many financial advisors agree that, to maintain the standard of living you have become accustomed to, you should plan on needing roughly 80% of your annual working pay during retirement. Remember, your retirement funds can come from any or all of the above.
You are responsible for investing your private savings and your 401(k) funds to maximize return, growth, and income. When you reach your fifties, you may want to get a little more conservative in your investment choices. While many financial advisors subscribe to some general investment strategies for people getting closer to retirement, you should consider your personal financial situation carefully and may want to consult with a financial professional. The most important evaluation criteria you need to consider is your own financial condition and your risk tolerance. As a general rule, you may want to consider keeping about 60 percent of your investments in stocks and the other 40 percent in bonds and other fixed-income investments. This approach still allows you the benefit of higher returns from stocks but also ensures a solid and predictable rate of return from a sizeable portion of your nest egg. Remember that stocks are always potentially risky, so you should adjust your allocation according to your own personal circumstances.
Never make a decision as big as this one in haste. Carefully review your options and do your best to clear your emotions from the decision making process. Think about your new future and how you want to live!
Have you given up retirement savings to keep the house?
Suzanne Cramer is a certified credit counselor and a Social Media Specialist for CareOne Debt Relief Services.
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