How to Put Divorce in Retirement Planning

By Gina Lynell Smith

 

None of us want to plan for divorce, but should divorce happen; it could drastically reduce your retirement income.

 

I often read the “Retirement Debate” of the Wall Street Journal, and one woman posted a comment that said she divorced after 25 years of marriage. She had only worked part-time and volunteered during marriage. She returned to college, and got her degree after her divorce. Now starting out in the full-time job market later in life, she is making the same salary as a young college graduate, less than $40,000 annually, and must pay her student loan. In addition to only receiving half of her husband’s retirement funds, she lost half of her personal 403b in the stock market.

 

 Starting out later in life to do your retirement planning or to try and recoup losses is very difficult.

 

Here is a concept called “The Cost of Waiting.”  First, look to see how much you need per month to pay all your current monthly expenses when you retire. Remember to include medical expenses.  Next, look to see how many years you have left before retiring, and the corresponding amount in the chart is how much you are losing every day by not investing now. This amount should be multiplied by one and one half times for married couples to plan for divorce.

 

Whomever is the stay-at-home parent should be compensated for the loss of retirement they would have received as benefits had they worked full-time. An average divorce will result in the stay-at-home person receiving half the retirement funds, but if they are expecting monthly expenses to be approximately $5,000—a divorce will result in only $2,500 for each. Unless you are willing to live with a roommate in retirement, this amount may not be enough.

 

Men often remarry after a divorce. Let’s hope that his new wife has saved for retirement, otherwise they both will have to live on only $2,500 per month in retirement. Most women do not remarry, so they will not have an additional retirement income from an expected new husband. In either case, half is not enough.

 

If we take the original $5,000 and multiply it by one and one half times, the result is $7,500. This amount if divided in half due to a divorce, would be $3,750, which is an amount that is much better than $2,500.

 

Now looking at the chart, $1,096 to save per day if retiring in five years may seem quite impossible unless you have a great investment with very high returns. This amount is more like $1,644 if you are including the possibility of for divorce.

 

Again, my suggestion is to diversify your investment assets. Do not put all of it in stocks and mutual funds. Do not put all of it into your family home. Put a healthy amount of your investments into a self-directed IRA and buy pre-developed land.  A healthy amount used for the self-directed IRA to buy land could easily give you an appreciation value that would bring you to $2 million or $3 million in five years. I find that such investments also help recoup stock market losses.

 

The grant deed that your IRA will hold cannot be lost in the stock market, and well-chosen land will always appreciate over the long-term well above the stock market.

 

Next week, I will show you why land appreciates better than a home and why it may be better to self-direct your real estate IRA rather than have an IRA that includes stock in real estate.

 

Always live happy and wealthy!

 

You can contact me by email

 

Ten Criteria Needed to Purchase Land for an IRA

by Gina Lynell Smith

 

The key to any successful investment for an IRA is to have an appreciation in value that effectively reaches a retirement goal.

 

More and more individuals are turning to self-directed IRAs to assist them in reaching their retirement goals. One simple investment, which is now allowable by the IRS, can be purchased with a self-directed IRA—Land.

 

Purchasing land and ensuring that it appreciates is risky without locking-in ten criteria before you buy.

 

1.  The first requirement is a master plan for the community surrounding the land must be in place. The master plan should cover a radius of 40 to 60 miles around the land you want to purchase, and it should include detailed planning for streets, sewers, electric and gas services.

 

2.   The next requirement is a large population growth projection that is from a reliable source such as the Census Bureau. Finding out the reason for the expected population growth is also significant. You should make sure that the reason for the growth is not dependent on something that is expected to change in the near future. For example, if the growth is dependent on an airport that is expected to close soon or has been refused expansionary permits and zoning is not a good sign.

 

3.   Another determining factor is the existence of commercial and residential development. Most residential developers who have already begun residential development have also already completed authoritative studies, which support the population growth needed for them to sell homes, condos, and apartment buildings to make a profit. They will need land in that area as they continue to build.

 

4.   Next, is the existence of industry and commerce with a zoning plan in place for both industry and commerce. Check with the local zoning department to see the proximity of allowable zoning for business and/or industrial buildings.

 

5.   Another key factor is the proximity of a large metropolis. Check to see how close the nearest big city is to the land you want to purchase, and I mean big city like Los Angeles, New York, or San Francisco. It should be within 40 to 60 miles from the land you want to purchase.

 

6.   People and families in the big city will eventually need to find affordable places to live outside of those big cities; therefore, schools play a major role in choosing the land for an IRA. Make sure the educational system in the area is developed from primary through college.

 

7.   In addition to factor number one, make sure that those utilities and services in the master plan are prepared or are in the process of preparing to be available for massive population growth.

 

8.   Accessibility by train, freeway, and air is also key. Population growth cannot happen without people and businesses being able to easily reach the area. All three of these transportation systems should already be in place.

 

9.   Man cannot live by bread alone—which means available water supply for massive growth should also be in place.

 

10.  Lastly, the land must be level and usable. If the land has toxic waste, businesses or residential developers cannot use it. Other factors affect land usability, and an informed appraiser and real estate broker should be sought.

 

I work with a group that has a professional acquisitions team. The team has located land parcels that fulfill these criteria, and the parcels have appreciated well beyond the returns of the stock market.