When Financial Cheating Hurts Your Retirement Plan

With professional financial advice and guidance, couples can avoid the cascading failures that can completely derail retirement planning. A move he often sees spouses employ doesn’t end up being a solution.

“For example, it’s common to see 401(k) loans — or full withdrawals, especially during Covid times — to try to patch things up,” he said. “The problem with 401(k) loans is that you have now stolen your future to pay off a past debt. In the worst case scenario, if you lose your job, the 401(k) loan becomes immediately due; otherwise, it is Taxes would be in addition to a potential 10% penalty, which the IRS applies to people making withdrawals before age 59.5 — except in certain circumstances.

Ms. Matthews, who is also a Certified Divorce Financial Analyst, advises clients to start with the basics when dealing with financial infidelity. “What does your income look like compared to your debts, also known as the debt-to-income ratio?” she says. She urges clients to change their goals or revise their financial expectations.

The lower your debts relative to your income, the better your prospects for recovery. For credit card debt, she suggests paying off the highest debt first, “so you don’t go further down that hole.”

Only after paying off your debts, says Dr. Zigmont, can you think about saving for retirement.

Still, the recovery process and the resulting decisions, Ms. Matthews said, are difficult. “Can you afford to stay in your current home without hurting your ability to retire? Sometimes you have to downsize your house or you may have to work longer,” she said. “You have to look at the scenarios that are the least disruptive.” Your whole view of your retirement may have to change, she said.

Most qualified financial planners will help you align your expenses with your income, save for short-term goals like funding education, and possibly saving for retirement. A key note in rebuilding your retirement plan: Take full advantage of tax-deferred funding in retirement plans.


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