How to Protect Your Wealth Through Major Life Transitions

Major life changes, such as a divorce, a new job, retirement, the death of a spouse, or an inheritance, can create doubt and confusion about how to handle your financial plan. This guide helps you turn potentially disruptive life transitions into positive ways to protect your wealth.

An Investor’s Guide to Life’s Biggest Financial Turning Points

How do you keep your emotions and finances in order when a major life event has changed everything you thought was stable?

Your existing financial plan can rather suddenly be out of date and of little use. Income, expenses, taxes, risk tolerance, and goals can shift at once.

Those events often arrive with emotional overload and time pressure. Almost three in ten investors make major, sometimes drastic, changes to their financial plan during or shortly after a major life transition, such as delaying retirement. Triggered by grief and confusion, some cash out their retirement and estate plan portfolios, while others lose track of their accounts. We’ve outlined the most financially significant life events clients may face.

1.  Divorce – Protect Your Financial Footing

How do you protect your assets, in addition to hiring a great lawyer, during and after a divorce? Divorce is one of the most disruptive financial (and emotional) events you may ever face. Incomes often drop sharply for both men and women after a divorce, but in different ways.

Divorce impacts income

Men who divorced earned less (about 17 percent on average) in their first year of single life.  The decline in net income was even more pronounced among men in their 30s and 40s, who often experienced a 10-40 percent drop in their standard of living after divorce.

Often, men have a long list of new expenses, such as large legal fees, child support and alimony payments, and separate housing costs.

Women face a different income “divorce gap.” Women’s household income, on average, has historically fallen by approximately 41 percent in the first year after divorce, compared with about a 20 percent decline for men. The loss is relatively the same for women who divorce in their 30s and 40s as it is for women who divorce late in life.

Many women who work outside the home reduce their income by choice, cutting back work hours, or leave their careers to be with their children.

As always, every family and case is different, and results may differ.

Post-divorce planning

You can’t erase the financial shock of divorce, but you can soften it by getting organized and consulting with your wealth advisory team, in addition to working with your divorce attorney. You should also update your estate documents and beneficiaries, and build a new plan for your savings and retirement. Then build a post-divorce budget that reflects your new reality.

2. New Job, Career Change, or Job Loss – Keep on Track

Did you finally get that new job at your firm, a new career in an entirely different field, or more responsibility and income at a job in a new city and state? Congratulations! You’ve made a critical life decision and created a host of new financial issues to resolve.

New job at the same company

A promotion or new role at the same firm often raises your income, but may change how much you pay in taxes, Social Security, and the like. It’s easy to spend more to keep up with an increased salary. To stay on track, review and reset your budget, and increase your retirement contributions (and the employer match, if available.)

Job changers

On average, job switchers saw a 10 percent increase in pay, but approximately one percentage‑point drop in their retirement savings rate. As soon as you can, enroll in your new employer’s retirement plan and at least contribute enough to get the full match.

For your old 401(k), avoid cashing out if possible. Early withdrawals are taxed as income and may carry a 10% penalty if you’re under the age of 59.5. You also  lose future taxdeferred growth. Instead, consider leaving the money in the old plan, rolling it to your new plan, or moving it to an IRA.

If your new job takes you to a new city (and if you have not done so already), research the cost of living in your new zip code before you upgrade your lifestyle. Compare housing, taxes, transportation, utilities, groceries, and insurance so you know how far your new salary will really go, or not.

Loss of a job

Losing your job creates a different set of stressors, financial and otherwise. Your income drops, but expenses continue. Many families, even two-income households, see their total income drop by roughly 46 percent right after unemployment begins. This is when you cut nonessential spending, protect your health coverage, review unemployment benefits, do temporary or contract work, and go get the job that’s meant for you.

Using your emergency savings can lead to high financial anxiety. Try to minimize tapping into your emergency fund or retirement accounts, if you have them.

3. Retirement – Protect and Grow Wealth

Are you at or near retirement, and starting to think about what to do next? Retirement is a series of stages, each with its own issues and risks. You move from saving for “someday” to today.

Thinking about retiring

Retirement is often a vague concept for families in their 30s and 40s and in some cases, beyond. You start facing the need to invest and prioritize how to pay for your children’s future college expenses, aging parents, and household expenses. The key issues for this cohort are, in addition to actually getting started, setting financial goals and deciding how much to save and for how long.

Nearly retired

In your 50s and 60s, retirement stops being theoretical and becomes a deadline. You need to know if your investments and Social Security can support the lifestyle you want. The big issues are how to invest more for both growth and income, planning for health care costs, and reducing your debt before retiring.

Already retired

Once you retire, the main goal for many is to enjoy the life they have always imagined. You likely want a steady income to cover daily expenses and unexpected costs, and an investment portfolio that can grow over time to keep up with inflation and rising health care expenses.

For many families, this strategy may give you the freedom to travel, host annual family gatherings, and help your adult children or grandchildren when they need it most. With the right plan in place, you can create a lasting legacy through your will, gifts to family, and charitable giving. This way, your values live on through your wealth long after you are gone.

4. Death of a Spouse – Create Order In The Midst Of Loss

Have you recently suffered the loss of a spouse or family member? The loss can be devastating, especially if your loved one handled most of the money decisions or if key documents, like wills, bank, and investment account statements, and passwords, are hard to find. The surviving spouse is often unprepared when they need support most.

Postpone major decisions

Whenever possible, postpone major investment changes, home sales, or large gifts until you have had time to process your grief and review your goals with a trusted advisor. This can be difficult. According to McKinsey, about 70 percent of new widows have historically changed financial advisors within the first year after a spouse’s death, often because they never felt fully included in the prior relationship.

Talk amongst yourselves

Ideally, both spouses have a good history of talking about their finances, both together and with their wealth advisor or financial planning team, which may include a lawyer and an accountant. For the surviving spouse, it helps to already have a long-term relationship with an advisor they know and trust.

If a spouse dies, widows can be more effective in managing decisions during emotionally difficult times with a plan in hand. Many widows find it helpful to prioritize their decisions into now, soon, and later buckets. Issues that may need immediate attention, such as maintaining current income and ensuring proper beneficiary claims, should go first.

5. Inheritance – Avoid Costly Mistakes

Should your first move after receiving an inheritance be to buy the new Ferrari of your dreams? Or maybe take a lovely cruise with your spouse and family to Spain or the South Seas? The best answer is a sensible “No.” The most effective first move is often to do nothing.

A gift and a burden

An inheritance can feel like both a gift and a burden. Behavioral research shows that making a plan makes a difference. About seven in ten families who created a written estate plan and discussed it with each other said they were more confident and prepared to manage inherited wealth than those without a plan.

A gift of opportunity

Think of the money you inherit as an opportunity to do things you otherwise could not do. Some families invest in donor-advised funds to support their charity, or charities, of choice, or build a family foundation to fund their passion and purpose. Other families create an estate plan or invest additional funds in their current estate plan.

Frequently Asked Questions About Making the Most of Life Transitions

How does a new and serious health challenge in the family affect my financial plan?

A major health diagnosis can change your financial picture in ways you do not expect. Treatment costs, travel for care, home modifications, and time away from work can all strain even a well-funded financial plan. You may need to rethink how long you plan to work and how much risk you feel comfortable taking with your investments.

You can start by thinking about your likely medical and caregiving costs over the next few years. Then look at your insurance, employer benefits, and existing savings. From there, revisit your spending, withdrawal strategy, financial plan, and estate plan to reflect your new priorities.

How does becoming a caregiver for a parent affect my finances?

Becoming a caregiver is also a major financial event. You and possibly your spouse or other family members may need to take substantial time off from work, and spend additional and unexpected money on health care, housing, travel, and hospital expenses. Over time, you’ll likely save less, if anything at all, and potentially drain your savings, emergency funds, and retirement accounts.

You can protect yourself by treating caregiving as part of your planning. Review whether your parents’ resources can be used, how government and insurance benefits can help, and what boundaries you need around your time and money.

What if my spouse and I have different levels of risk?

For many couples, the husband is a risk-taker, and the wife is more likely to be the cautious one with family assets. Or vice versa. Differing comfort levels are common, especially after stressful life transition events. Rather than arguing about specific investments, think about focusing on the goals you share, the amount of income you need each month, and time horizons. Your advisor can look to build a revised investment plan that meets your new objectives and each partner’s preferences.

Final Thoughts on Protecting Wealth During Big Life Transitions

Divorce, retirement, death of a spouse, job loss, career change, and inheritance are  all major life events, some foreseeable, others not. How can you prepare for and protect your wealth during major life transitions?

At Glassy Mountain Advisors, we help families achieve their dreams, enjoy their lives, create lasting and meaningful legacies, and build generational learning and growth.

As your investment partner, we look to guide, clarify, and empower you every step of the way. Ready to get started? We are here to help.

Schedule a complimentary financial planning discussion to feel confident in your family’s financial plan.

The information provided in this report should not be considered, tax advice, financial advice,or a recommendation to buy, sell, or hold any particular security. You should always consult with your tax professional with regard to specific tax questions and obligations. Glassy Mountain Advisors, Inc. is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Glassy Mountain Advisors including our investment strategies, fees and objectives can be found in our ADV Part 2 and/or Form CRS, which is available upon request.