People often ask me how I define a wealthy divorcee. Simply put, I consider someone wealthy if she could live off the interest of her investments without touching principal or selling any assets.
In practical terms, living off of interest alone requires a nest egg that's at least 400 times your monthly expenses. For instance, if you need $20,000 a month after taxes to pay your bills you would require at least $8 million a year in principal, assuming your investment yielded around 5 percent a year, or $400,000. (After taxes, you'd be left with around $240,000 of that amount — assuming you paid around 40 percent in taxes — which would come to $20,000 a month).
But here's one thing I can assure you of: Not many people with $8 million on hand have the discipline to live on $20,000 per month.
What's more, even if you decided to live on $20,000 a month in the short term, over time special expenses and cost of living adjustments would push that figure higher. Further, as you got older and your life span shortened you might begin to spend some principal.
The bottom line is that very few people are wealthy enough to live off of their interest. Sadly, however, most don't take action fast enough after the divorce to generate income, develop a sound investment strategy and create a budget.
Some women have an especially hard time with the idea of going back to work. In some cases, they find it beneath them, but most often it's because they've been out of the work place for so long they're intimidated to go back.
It's painful for me to see this because these are usually extraordinary women with many talents in design, care-taking, teaching, financial management and one even had a degree in molecular biology.
If there is any message I can give the newly divorced woman it's this: Develop a strategy to go back to work. Doing so will not only create income, it will also be a new challenge.