Experiencing a “gray divorce,” which typically occurs later in life, not only brings emotional challenges but also necessitates meticulous financial planning. The initial move in this process is hiring a seasoned divorce attorney. Although saving on legal expenses may seem appealing, lacking professional advice could lead to greater financial loss. Grasping the significant financial and tax considerations that accompany gray divorce is crucial.
When it comes to budgeting, a post-divorce scenario considerably alters your financial landscape. While married, your income supported one household, but after divorce, it needs to sustain two. This often means your income is effectively halved. Although you’ll be funding just your own expenses, certain costs—like housing, insurance, and medical fees—might surpass half of what they once were during marriage. Begin by crafting a precise budget, itemizing fixed expenses such as rent, car payments, insurance, groceries, and utilities. Adjust your variable expenses—like travel and dining—based on your remaining income. Over time, as your lifestyle stabilizes post-divorce, reassess and update your budget accordingly.
Considering whether to keep the family home post-divorce requires careful thought. Retaining the house could mean less access to other financial assets. Moreover, maintaining a large home and carrying a mortgage might strain your finances. Question the practicality of becoming house-poor just to hold onto a property that might no longer suit your needs.
Social security benefits post-divorce offer particular advantages if your marriage lasted at least ten years. You are entitled to receive the greater of your own Social Security benefit or half of your former spouse’s benefit. If you’re close to the ten-year mark in marriage, it may be wise to delay the divorce to meet this threshold. Furthermore, as you approach age 62, decide wisely whether to take reduced benefits early or wait for a larger monthly payout, considering your financial needs and life expectancy.
Returning to work can be a viable solution if your cash flow is insufficient after divorce. You might not need a high-stakes full-time job; many opt for part-time roles like substitute teaching or pet sitting to supplement income. Maintaining some form of employment can also delay the need to tap into retirement accounts, preserving your financial resources for the future.
Long-term-care insurance becomes increasingly important when you’re single. It’s less costly and easier to get while you’re younger and healthier. If affordability is an issue, consider policies with extended waiting periods of 180 or 360 days. Covering long-term care for a defined initial duration is often more affordable. Additionally, you can explore converting a life insurance policy into a long-term-care policy or consider moving into a continuing care retirement community. These communities offer a spectrum of living arrangements, from independent to assisted, aligning with your evolving needs over time.
Making informed financial decisions during and after a gray divorce is essential for maintaining your well-being and securing your financial future.