Divorce in general is rough, but it’s a topic that often comes up when discussing retirement planning here in San Antonio.
As you plan your retirement and set goals to reach when the time comes to PIVOT to the next step in life, divorce can unfortunately be a game-changer. Those plans you made and the possibility of making them happen may become impossible when a spouse can no longer help.
Sadly, there is a demographic getting divorced at an alarming rate: Baby Boomers.
Life is different after you PIVOT from working life to retirement life. You have more time on your hands and your responsibility often shifts from raising children to staying healthy and finding purpose. It is important that during this transition you don’t find yourself saying, “I woke up one day and realized I was married to a stranger.”
One of the first misalignments I have experienced is the disconnect between expectations and concerns. One spouse expects to travel while the other is worried about outliving the money. Or one spouse expects to move to cooler weather and the other is focused on health care where hospitals and physicians are the priority. Before retirement begins, expectations need to be aligned. If independent thoughts are not reconciled, couples could quickly move into covert coping, then frustration and finally divorce.
This is where the financial impact comes in.
After the attorney fees and legal costs, there is the distribution of assets. The house is split in two and the 401(k) is cut in half. There are typically a few emotional missteps along the way, causing taxes and penalties, thus further draining the nest egg. Finally, when it’s all settled, the divorced couple realizes that living on half of the income and half of the assets is not easier than expected. The joint effort that was considered leading up to retirement was a lot more comforting than the post-divorce financial outlook.
In other words, it’s expensive to pay for retirement alone.
Unfortunately, the financial impact of divorce isn’t always immediate. Twenty years down the road, the price of divorce can painfully be felt. It could literally lead one spouse to poverty.
According to the National Center for Health Statistics, for every 1,000 people, there are 6.9 new marriages each year and 3.2 divorces. I suppose that if you take six and divide it by three, you’ll get the 50 percent divorce rate we hear about. We are not at a 50 percent divorce rate, but those few who do divorce are often in financial trouble.
My advice to most middle-class Baby Boomers is this: You’ve stuck it out this far; keep going, because the financial impact is significant. It may be easier to work through life together, especially if you are providing support to kids and parents as well. People in this situation are considered what is called the sandwich generation.
The Money Side of Marriage
Twenty-two percent of all divorce is a result of problems with money.
I recently had to separate a $500,000 investment account between a couple in their 70s getting a divorce. Both felt they lost the financial negotiations. They both did lose. When the couple has separate cell phone plans and separate grocery bills, $250,000 will not last as long. A different home and new utilities will eat away the bucket of money split in two. Financial life just got a little more difficult for this couple.
Let me give you another reason to fight for marriage, a financial one. If you get a divorce, it is highly likely that the female will be impoverished. Poverty may not hit her today, but it is likely to hit her in her 60s or 70s. The reality is that not many employers care to hire older female workers whose skillsets might not translate into the modern-day workforce. This is not right, but it is a reality and it subjects many women to a life of financial hardship. When a young wife is divorced and must care for the children, the pressure can be exponentially exhausting. In fact, according to Healthy Marriage, 24 percent of divorced women with children are living in poverty. Compare that statistic to the 1 percent of married women with children who are living with poverty.
‘Insure’ Your Marriage
“Pretty Woman” star Julia Roberts bought insurance to cover her smile in the amount of $3 million. Las Vegas star Tom Jones had his chest hair insured for $7 million. You can get insurance for just about anything, including if your fiancé gets cold feet – yes, there is wedding insurance. Although unique insurance policies are interesting and entertaining, most insurance is simply dry. Despite the disinterest, we recommend owning the following four types of insurance:
1. Life Insurance
Our team at PAX Financial Group usually recommends our clients purchase 10 times their income in life insurance to protect those who depend on that income and to pay off debts. Stay-at-home spouses should own one half of the working spouse’s coverage. I work with one widow who works only because she wants to. She shows up every day knowing she can quit because her husband left her enough money to live without forced employment. This is freedom and peace.
2. Disability Insurance
We recommend buying 60 percent of your gross income in long-term disability insurance with a 90-day waiting period. First buy through your employer and then shop the open markets with an individual plan. This is not an insurance to ignore; the leading causes of disability are not just falling off ladders. Rather they are musculoskeletal/connective tissue disorders such as neck and back pain (28.5 percent), cancer (14.6 percent), injuries (10.6 percent) and mental disorders (8.9 percent). We filed a claim while my business partner was disabled. The money was vital to keep us going.
3. Health Insurance
It’s tempting to avoid purchasing health insurance. But cancer and car accidents know no age and the financial impact could burden you for life. When shopping, like most purchases, buy the best plan with the cheapest cost. But have a dialogue with the agent to make sure your doctors and medicines are covered adequately.
4. Identity Theft Insurance
If you frequently make purchases on the Internet using debit cards, there is a chance you could get hacked one day. Not only can you have money stolen, but you may have to take time and energy to get your financial life back in order. The mean total out-of-pocket loss for those victimized with identity theft in 2014 was $2,895. Most coverages offer fraud monitoring and alerts at similar prices. Check out independent third-party reviews to identify the unique differences that might be better for your situation.
You will never have probabilities in your favor when evaluating insurance. In other words, there will never be an insurance company that will insure something when there is a 90 percent chance of paying a claim. With every insurance you buy, you are buying against the odds. Accept this fact. However, you are protecting yourself and your family should you be the unlucky one to fall victim.
Outside of the above four referenced insurance policies, most other coverage types are personal decisions. For example, if you have a concern about lawsuits, the purchase of an umbrella policy could make sense. Just ask yourself two questions: What are the chances, based on my background and experience, that I might get financially banged up, and can I afford to cover the event if it gets too expensive?
It may seem like a drain on your money, but insurance is important.
Divorce is not a happy subject, but it can be an important factor in proper retirement planning in San Antonio. Talk with us to see how PAX can help.
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