When you enter the workforce, you usually start contributing to your employment-based retirement account. As you work, you build and add to your nest egg every year.
If you contribute to the retirement account during your marriage, North Carolina law classifies it as marital property. That means the nest egg is up for division, and it is critical that individuals facing divorce not overlook the need to protect their retirement.
How much will you need to retire?
The actual amount you need will vary. It depends on many factors, such as your personal spending and saving habits, and your income. However, the general consensus among financial professionals is that individuals will need 70% to 80% of their annual income before retirement in each year of retirement to live comfortably.
As we have discussed in previous blog posts, a divorce can affect that amount significantly after dividing:
- Dividing marital assets that can contribute to net worth
- Dividing the actual retirement account
Once again, the financial circumstances of you and your spouse will determine what a fair division will mean for you. That is why it is important to take steps to secure your financial future after a divorce.
So, what should you do?
There are many steps you can take to understand and protect your finances in divorce. However, things can quickly get complicated when it comes to retirement accounts. Valuing them can be difficult and there are very specific rules to follow.
In these cases, professional financial and legal help can make a critical difference. They can help you:
- Avoid serious tax penalties
- Protect finances now and in the future
It is true that your age – and how close you are to retirement – can certainly affect how much property division might affect your retirement. After all, your age will also generally determine how much you have saved in your retirement accounts. Individuals over 50 must take extra care especially as the rate of elder divorce increases.
Younger couples may not have as much in their retirement accounts to divide. They might also have more time to make up the difference after the divorce. Even so, anyone considering divorce must be aware of how it could impact their retirement plans – and what they can do to protect their plan.