When you’re married, you’re generally planning for retirement for both you and your spouse—despite individually held retirement savings accounts. Most often, you each save to 401(k)s or IRAs but plan the retirement goals together. How much you save, where you save, and the type of investments are guided by your overarching financial plan. Unfortunately, after a divorce, these goals abruptly change. You’re no longer saving for two, and while savings may be individually held, that’s not always the case.

I recently spoke with an investor who was newly divorced. Most of her retirement savings were in her ex-husband’s name, which now leaves her behind in savings. This investor was only saving 5 percent of her salary to her employer-sponsored plan to get the company match.

The first step to repair retirement savings after divorce is to reevaluate your plan. Compare where you are in your savings plan with your new goals and determine if you need to change your savings habits.

The second step is to increase your retirement plan contributions. Most investors will save to a 401(k) plan or equivalent, sponsored by their employer. In addition to a possible matching contribution, 401(k) plans have generously high contribution limits. In 2022, employees can save up to $20,500 or $27,000 for investors age 50 and older. These high limits can certainly help an investor make up for lost time in the market when saving later in life. Not everyone can reach these limits; however, you can maximize the benefit of your 401(k) by staying with your employer until you are vested, and all matching contributions are yours. If possible, consider diversifying with a Roth 401(k) contribution to have a mix of tax-deferred and tax-free savings. Pay attention to your asset allocation and rebalance periodically to keep your assets in line with your target allocation.

If your work retirement plan does not have a Roth option, you may be able to contribute to a Roth IRA for tax diversified savings. Single taxpayers and heads of households can contribute if their modified adjusted gross income is less than $129,000. Eligibility is completely phased out with MAGI above $144,000.

To make room in your budget to save more, look closely at the expenses you can control. If you kept the marital home, consider refinancing while rates are still low. Pay off high interest credit cards or consumer debt to save on interest payments. You may also cut memberships to clubs or subscriptions to services you don’t need. You may want to look for ways to earn extra income that will allow you to save more. Consider asking for a raise or apply for a promotion at your current job. You could also consider side gigs related to your profession or hobby. For example, teachers may tutor, and nurses may do medical transcription.

Working with an investment adviser can help you define your new goals and how to achieve them. You may not need an austere budget or a second job. The earlier you begin saving, the easier it should be to repair any dent in your retirement savings.

William G. Lako, Jr., CFP®, is a principal at Henssler Financial and a co-host on “Money Talks”—your trusted resource for your money, your future, your life—airing Saturdays at 10 a.m. on AM 920 The Answer. Mr. Lako is a CERTIFIED FINANCIAL PLANNER™ professional.

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