Gray divorce hurts retirement plans of both individuals
The United States has one of the highest divorce rates in the world but it’s been going through a change in the past three decades. According to the U.S. Census Bureau, the rate of divorce for most Americans is falling since its all-time high in the 1980s, except when you look at Baby Boomers. The divorce rate for those over 50 has actually doubled in the last twenty years and now accounts for roughly a quarter of all marriages. Older marriages, and therefore older divorces bring with them their own challenges. Couples who have been married for long periods of time have entwined their lives far more than their younger counterparts. They are also more likely to have gone through a previous divorce. Those two things complicate the divorce process.
How your assets are divided is dependent upon the individual case but from the standpoint of where your finances were before the divorce when both individuals in the marriage shared 100 percent of the assets, you’re likely to see a drop. Divorce usually means that a couple’s retirement lifestyle has substantially decreased since it costs substantially more as two people to retire than it does for a couple. According to AARP, a man’s income drops 23 percent after a divorce and a woman’s income drops 41 percent. The result is that many people find that divorce forces them to continue to work past the time they originally planned to retire.
Couples in which one partner has always worked and the other either hasn’t or has very little employment history will see steeper ramifications than those who are on a more equal financial footing. Because that individual was until recently the woman in the relationship, divorce often leaves women in significantly worse shape than their partners.
If your marriage has lasted ten years or longer, be aware of Social Security strategies that can help improve both parties overall benefit.
Divorce at any age is complicated and fraught with opportunities that will impact you for the rest of your life. If you’re thinking about getting a divorce, hire a financial advisor. All things are not created equal and you’ll need someone with experience to understand that getting an equal dollar amount in a Roth IRA is not the same as a 401(k).
While you are considering the impact of divorce on your retirement income and future retirement plans, consider one other thing. Married folks generally don’t need long-term care for both partners because one spouse generally provides unpaid care for the other. The majority of people in nursing homes are women, not just because women live longer but because those women no longer have a partner to lean on for their care. If you get divorced, both sexes are more likely to need to pay for caregiving and should include planning accordingly.
Finally, one of the reasons older couples get divorced is to protect their assets when one of the spouses has a medical problem and spiraling medical costs threatens financial ruin. One way this can look is to have the well spouse get everything in the divorce decree but with the caveat that the assets must go to a Safe Harbor Trust with the ultimate aim of providing care for the ill spouse. Any medical divorce should be handled by an Elder Law Attorney to ensure that you have not traded one jeopardy for another.
Ending a marriage can throw a wrench in your retirement plans