Man who is rebuilding his retirement savings after divorce.

Real money stories: He wanted to retire in 15 years, then divorce halved his 401(k). Here’s how he started rebuilding.

Before the divorce, Chris Andreasen felt like retirement was right on track.

The 47-year-old advertising manager from Des Moines, Iowa, saw himself retiring at age 63 to travel and play video games with his grandchildren.

When a divorce settlement halved his 401(k) balance, he knew he had to change his plan—and find the energy to rebuild.

The breakup of a marriage can have tremendous emotional and financial effects. In fact, a study by the Center for Retirement Readiness at Boston College found households that have experienced divorce had reduced ability to maintain their standard of living in retirement.

They even estimated that the impact of a divorce on retirement readiness was almost equivalent to the market impacts from the financial crisis of 2008.1

With that potential for disruption, it’s important during divorce to understand what can happen to your retirement savings and make a plan to rebuild sooner rather than later.

Understand the divorce settlement and the QDRO.

When Andreasen began negotiating his divorce settlement, he was shocked to find that his 401(k) could be part of it.

The law in his state considers retirement accounts to be marital property, which would require him to split the amount with his ex-wife.

Though his ex-wife was working, her employer didn't offer a retirement plan. And she hadn't started her own yet.

"We were planning to live together off my retirement and pension and share our accumulated savings," Andreasen says. "Still, seeing that balance halved was worrisome."

In a divorce proceeding, retirement plans require a qualified domestic relations order (QDRO) to split a 401(k). A QDRO is separate from the divorce agreement, and it allows the funds to be moved without the typical 10% early-withdrawal penalty.

“The analytical part of me didn’t really see how rebuilding was going to be realistic,” Andreasen says. "You're no longer adding to what's already saved, you're trying to rebuild what was lost. It seemed like an almost impossible task to reaccumulate the amount I’d lost in the next 15 years.”

Pause, then start to rebuild.

In the aftermath of a divorce, you may be dealing with legal expenses, a different income situation, and a new set of expenses. Don’t rush into big changes if you’re not sure what your new financial picture looks like.

“Divorce is psychologically draining,” says Heather Winston, assistant director of financial advice and planning at Principal®. “And it gets more challenging when there’s money involved.”

As a newly single parent to a 20-year-old and a 17-year-old, this is something Andreasen experienced firsthand. Before the divorce, a dual income provided the family with the flexibility to operate without a strict budget. But after, “I realized pretty quickly that my budget had to change,” he says.

One of Andreasen’s first moves was examining his financial priorities—topping the list is taking care of his 17-year-old son, who still lives at home full time. “I had to start making some lifestyle choices,” he says. That includes fewer nights out and cutting back on visits to the movies.

Winston says it may take 6 months or more after a divorce to get a handle on your new financial situation. During that time:

  • Adjust your beneficiaries, your will, and any powers of attorney you have to suit your new reality.
  • Check your savings and adjust your paycheck to build a financial safety net. Once you feel like you’re settled, start rebuilding your emergency fund.
  • Examine both your tolerance and capacity for risk. Ideally, your tolerance for risk (how much volatility you’re comfortable with) and your capacity for risk (the amount you need to take to help attain your goals) are aligned. But Winston cautions, “When you’re going through something like a divorce, your tolerance might change, but your capacity might not.” With investments, more risk can mean the potential for higher returns, but it also means a greater chance for bigger losses if there’s a market downturn. So Winston suggests pausing to consider if your pre-divorce asset allocation remains appropriate for you.
  • Get help if you need it. Winston recommends finding or reconnecting with a financial professional at the time of separation, who can help you look at your financial picture holistically and assist in setting priorities for saving, spending, and preparing for retirement.

Find or reconnect with a financial professional at the time of separation, who can help you look at your financial picture holistically and assist in setting priorities for saving, spending, and preparing for retirement.”

Adjust your contributions.

You can't control the markets, but you can control how much you're putting into your retirement.”

The amount you contribute to your retirement savings is one of the major levers you can use to rebuild your balance. “You can’t control the markets,” Winston says, “but you can control how much you’re putting into your retirement. If you’re in a retirement plan with an employer match, either contribute enough to maximize that match or gradually increase your contributions to get to that point.”

However, there can be some hurdles to retirement contributions. Even though you’ve lost a big portion of your balance, your 401(k) plan is subject to the annual IRS maximum contribution limits and any restrictions from your plan. Currently, in a 401(k), you can contribute $19,000 a year. If you’re over the age of 50, you can add another $6,000 a year as a 401(k) catch-up contribution.

There are other retirement options if you can afford to invest more:

  • Traditional IRA. Contribute up to $6,000 a year before taxes. And another $1,000 if you’re over age 50.
  • Roth IRA. Contribute up to $6,000 a year after taxes. You can also add $1,000 in catch-up contributions once you’re over 50.
  • Brokerage account. Not tax advantaged, but another place to invest your money for potential growth.

A couple notes about IRAs. Your total IRA contribution—traditional, Roth, or both—is $6,000 per year. And with Roth IRAs, you might be restricted from contributing if your income is above a certain level.

Adjust your expectations.

After his divorce, Andreasen reassessed when he’d retire and what retirement would look like.

“I’m now shooting for age 65, but there’s going to have to be a scenario where I work to make ends meet.” He’s OK with working in retirement; many Americans are.

The Working Longer study from AP-NORC Center found that 42% of Americans felt that staying in the workforce longer would be good for their career.  

And travel? “I’d still like to travel,” he says, “but it may be a little more Black Hills in South Dakota and a little less Black Forest in Germany.”

What to do next?

  • Have a retirement account from your employer with services through Principal®? Log in to make sure you’re maximizing your employer contribution. First time logging in? Get started.
  • Got a financial professional? They can help you figure out your financial picture after a divorce. If you’d like to meet face to face, find one near you.


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Not indicative of future results. Results will vary based on retirement plan characteristics.

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