How much money you will need to support yourself and your spouse during retirement; What lifestyle you will be able to live; and how much you need to contribute to your retirement accounts in order to reach your goal.
However, your retirement plan assumed that you would be married. Having a spouse allows you to pool your retirement money together and share in your expenses.
As a single retiree, you may have less financial resources to work with. There are a couple of ways that divorce can drain your retirement accounts.
In Illinois, retirement benefits are considered marital property subject to division in a divorce. Your spouse can claim an equitable share of any retirement benefits that you have accumulated since being married. Divorcees typically settle the division of retirement benefits in one of three ways:
- Agreeing to pay the other spouse a percentage of the retirement benefits once he or she is retired;
- Allowing the other spouse to immediately withdraw a share of the retirement benefits, possibly to invest in his or her own account; or
- Offsetting the amount owed from the retirement benefits through other marital properties.
Individual retirement plans often work by diverting a portion of your income into the plan. You decide the percentage of each paycheck that you will contribute based on how much money you need for your current living expenses.
After your divorce, your budget may be tighter because you no longer have your spouse’s income to help with your living expenses. Thus, you may no longer be able to afford to make the same contributions to your retirement plan.
The closer you are to retirement age, the more urgent it is for you to change your retirement plan to address your post-divorce needs. You have several important decisions to make, such as:
- How much money you will need from your retirement account now that you are divorced;
- Whether you need to adjust your post-retirement lifestyle expectations; and
- Whether you want to push back your retirement age in order to accrue more savings.
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