Dear Helaine: I'm a 55-year-old woman living in New York City. I'm recently divorced and received a $100,000 tax-free settlement. Before the divorce, I lived in a nearby state.
There's no alimony. (We earn similar amounts of money.) I'm a contract worker, and I am responsible for setting aside estimated taxes. I don't receive benefits. I have about $15,000 in an Individual Retirement Account and live paycheck to paycheck on a $50,000 salary. That's half of what I earned prior to the 2008 economic crash. I also don't own a house; I am paying $1,100 a month in rent, and that's with taking in a roommate.
I want to invest as much of that $100,000 as I can, but I am concerned about my tax bill and living in a new state, and I am worried about health insurance costs too. What portion should be SEP IRA, Roth or regular IRA, and what other kinds of investments. Stocks? Bonds? I do not have a clue. -- On My Own
Dear On My Own: I'm not going to sugarcoat this. You are in a very precarious financial situation. You are way behind on your retirement savings, you don't own a home, and you are reaching an age where age discrimination becomes extremely common. The long-term consequences can be severe: According to research, 25 percent of women who divorce after the age of 50 end up living in poverty in retirement.
So what to do to prevent that fate? You don't say if you have any emergency savings -- that is three to six months essential living expenses set aside, something that's even more important given you are a contract worker. You need to put that sum in a money market fund if you have not yet done so and then forget it.
After that, you need to seriously consider looking for employment -- as in the employment that comes with benefits -- if you want to remain in an expensive, high-tax metropolitan area like New York City. If you don't want to do that, or do not believe you can get a full-time job with benefits, you might need to consider relocating to a less-expensive region of the country.
Finally, as for the investment angle, you can't just put all of your divorce settlement in an IRA, Roth IRA or SEP IRA; there are annual limits on that. I suggest picking up a copy of the book I wrote with Harold Pollack: "The Index Card: Why Personal Finance Doesn't Have to Be Complicated." That will help you with retirement savings strategies as well as tell you how to seek out professional advice that will be in your best interests.
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