Many Americans look forward toretirement as an adventure to enjoy witha partner, and will save and invest forthat future together. Unfortunately, eventhe best–laid strategy can be met withunexpected circumstances. According tothe U.S. Census Bureau’s 2006 AmericanCommunity Survey, nearly a quarter of allAmericans aged 45–64 had been separated,divorced or widowed. When this happens,it’s critical to take the time to review—andsometimes rewrite—the definition ofretirement, both emotionally and financially.
It can be difficult to discuss these issuesshortly after such difficult experiences,yet time is of the essence. Addressingretirement issues early in the transitionto single life helps avoid making a moredifficult adjustment later on.
Reviewing any paperwork related to assetsand benefits should be the first order ofbusiness. In particular, first priority goes tounderstanding the terms and details of suchitems as pension plans, insurance contracts,wills or estate plans, and investments.Reviewing these documents can be timeconsuming—especially in the case of adivorce, which typically involves dividingassets and creating new accounts. However,going over the papers provides a newlysingle person with a realistic view of his orher broader financial picture—and what itwill take to keep retirement plans on track.
Ideally, this paperwork should be doneas part of a comprehensive review of thecurrent and long–term financial situationwith a financial advisor. In fact, a financialadvisor can be a crucial ally during thistransition period, not just in reviewing andassisting in the organization of finances butalso in explaining potentially importantinvestment strategies.
For example, in many relationships, onepartner generally takes charge of financeand investments. Someone who is suddenlywithout that partner may face a steeplearning curve at an emotionally difficulttime. The best way to tackle the task is to:(1) Start with the basics, (2) Don’t hesitate toask the most fundamental questions, and (3)If assets or accounts are being divided, it’simportant to make sure the new portfoliocreated has an asset allocation strategy thatwill still help you to achieve your lifestylegoals.
RESTRUCTURING A PORTFOLIO
Once new financial standing takes shape,it’s easier to assess whether changes to aninvestor’s retirement savings strategy mustbe made. Take, for example, a woman inher early 50s who loses her husband to anillness. Given longevity patterns, she couldlive into her 90s and may need to readjusther retirement plan.
In this scenario, if both spouses hadbeen contributing roughly equal amountsto retirement savings plans, the survivingspouse may choose to increase hercontributions to her own retirement plan.Because she’s over 50, she might takeadvantage of catch–up provisions allowed bythe IRS. For example, in 2008, those over 50may contribute an additional $5,000 to theirtax–advantaged 401(k) plans on top of the$15,500 allowed for any saver.
A suddenly single investor might also alterthe mix of his or her investment portfolio.While still maintaining a reasonable balanceof stocks and bonds, an investor whoexpects to retire solo may wish to increasethe proportion of growth–oriented stocks,giving the portfolio a greater opportunity toexpand.
SETTING A NEW COURSE
The newly single person may also findthat their broader dreams for retirementchange—but not necessarily in termsof sacrificing goals and lifestyle. Manysurviving spouses assume at first thatthey’ll continue with the same retirementplans they pursued as a couple. But insteadof moving ahead with a major purchase,such as a retirement home, it pays tothink carefully about whether the sameactivities and lifestyle still fit. Discoveringa new pursuit that becomes a way of lifeor indulging a passion that wasn’t part ofplans made with a partner may completelyreshape the retirement picture.
Proximity to family may take on newimportance for a single person; suddenlythat planned move to a resort a thousandmiles away might seem less desirable.Or the reverse may be true; rather thana single vacation destination, a variety ofdestinations may beckon. Delaying thepurchase of a retirement home may alsomake sense for those who can envisioncommitting to a new partner with whomthey might wish to make such a decisionjointly.
Updating estate plans, most importantlythe will, should be part of this process. Besure to enlist the help of an attorney and taxprofessional since a spouse is typically thedesignated beneficiary of such documents.The beneficiary designations for IRAsand life insurance policies may also needupdating when marital status changes.
Of course, many couples spend a long andhappy retirement together before facing anyof these issues. Keep in mind that althoughtalking about the possibility of being alonecan be uncomfortable, being prepared canhelp prevent an emotionally devastatingevent from also becoming a financiallydifficult one.
