Make a very detailed budget. Obviously the divorce has changed your numbers. Your monthly food cost, for example, will be lower if you are feeding only yourself. You no longer have the continuing costs of clothing for two people. And, of course, you now have one income instead of two to work with. List every expense, even the smallest. Compare the monthly expense total against your monthly income. That should give you a pretty good idea of your present situation.
The unpleasantness of divorce, for many people, is somewhat mitigated by the financial freedoms of no longer being married. A newly divorced person now has complete control of his or her own finances, even if she has to pay alimony. If this applies to you, you are now the CFO ---Chief Financial Officer --- of your own life. You will not have to negotiate with a spouse on such things as making major purchases, which debts should be paid off first or what should be done with a particular paycheck. If you don't have financially dependent kids, all you have to do is figure out what works best for you.
Make a second detailed budget. In this budget, list what you think will be your expenses after you retire, if you are going to retire. Again, compare the total expenses against what you expect your income to be, including Social Security benefits, any pension you 're expecting and any other sources of income you likely will have. That will give you an idea of what kind of shape you will be in if you do retire.
Make decisions based on your budget results. If you don't have enough money now or probably won't have enough in a few years, do something about it. Cut back where you can, and see what you can do to increase your income.
Consider the tax consequences of every major aspect of your life. For example, if you own a house and still have a pretty big mortgage, does it make sense for you to keep the house or should you move to an apartment? The tax deductions you get on your mortgage interest and on your property tax may be very helpful now. However, if after you retire most of the money you'll be living on will come from Social Security and savings, the tax deduction might not be as valuable. Your Social Security income, or a portion of it, is taxed only if your income exceeds a certain amount. So you might be bettor off living in an apartment.
Consider whether you want to pay for some advice from a financial consultant. If your financial affairs are not complicated, you probably don't need an expert to help you chart your financial course. But a consultant might raise some helpful points that you hadn't thought of.
Tips & Warnings
- To help with your planning, figure out how many years it will be before you start getting a monthly Social Security check, a pension or proceeds from an IRA. You can choose to start getting Social Security benefits before the age the government set for you to get full benefits. You can start getting a monthly check at age 62. But you have to pay a penalty for drawing benefits early, and the earlier you start, the greater the penalty. That reduced monthly amount continues (except for any cost of living increases) for the rest of your life, even after the full-benefit age the government set for you.
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