Divorce for people who are 50 and older has doubled since 1990. The news is even less encouraging for people 65 and older where the divorce rate has tripled since 1990. That’s at odds with the overall divorce trend in the US, which has been decreasing in the last few decades. For those who divorced after 50, a third had been married for 30 years or more, and many had been married for longer.
A new report from the Social Security Administration (SSA) paints a bleak picture for divorced retirees, and it’s one plan sponsors may want to give some attention. Specifically, the SSA provided a handful of new considerations about what retirement might look like in 2050. Among those predictions included some dire words about divorcees. “The poverty rate will be higher for divorced spousal beneficiaries compared with all beneficiaries aged 62 or older. More than 80 percent of divorced spousal beneficiaries aged 62 or older will be women. Divorced spousal beneficiaries will be disproportionately in low-earning households. At the median, divorced spousal beneficiaries will have earned fewer credits than all beneficiaries aged 62 or older. However, only the dually entitled divorced spousal beneficiaries will have earned enough credits to also qualify for benefits on their own records. ”[1] In a word: Ouch.
This issue, of reduced retirement income for divorced women may impact plan participants but also their families. For plan participants, the lack of access to social security benefits may cause participants to work longer, impacting health care costs as well as changing some considerations about retirement planning. It may also mean that plan participants draw on their retirement savings from benefits plans like 401(k) and 403(b) plans in larger amounts or faster than plan sponsors may predict. Those increased or earlier withdrawals may impact how plans are assessed fees and manage assets.
Reduced retirement income for divorced women may also impact plan participants who are the child of the divorced parent. Supporting parents in retirement may be a drain on time or financial resources. From a time perspective, families may have to assist in the caregiving for retired parents. It may also be a drain on financial resources as families provide monetary support for their parents. An increasing number of families have literally been making room for their retired parents since before the pandemic. During the pandemic, we discussed potential resources for families who decided to move their parents into their homes. In our article Welcome Home, Grandma! we discussed how plan sponsors can help provide employees or plan participants with information about how to make a home safe for aging parents as well as tips for having money conversations with adults and family members.[2]
One particular issue that may be of concern is the SSA’s note about earned credits. As the SSA stated, only those with earned credits will qualify for benefits on their own records. This may not impact individuals who divorce in their 40s, but for those who divorce later in life, it could be significant. The trend of divorcing in retirement, so called Gray Divorce, has been increasing. And that has a significant impact on retirement benefits. One site devoted to Gray Divorce had helpful notes on the trend. “According to a 2017 study by the Pew Research Center and backed by data from the National Center for Health Statistics and U.S. Census Bureau, divorce for people who are 50 and older has doubled since 1990. The news is even less encouraging for people 65 and older where the divorce rate has tripled since 1990.”[3] That’s at odds with the overall divorce trend in the US, which has been decreasing in the last few decades. For those who divorced after 50, a third had been married for 30 years or more, and many had been married for longer. Many newly divorced women may not have earned enough SSA credits to ensure that they have SSA income.
Finally, plan sponsors may want to make note of the Gray Divorce trend because it often happens at the onset of retirement. One site explained that retirement can be the instigator for Gray Divorce: “When a couple is working and/or raising kids, they're busy. Perhaps so busy that they don't notice they are growing farther apart with each passing year. But now that one or both have retired, they have a lot more time on their hands and again, realize they no longer know (or like) their husband or wife.”[4] If divorce among retirees is increasing, then plan sponsors may want to ensure their systems are set up to handle an increase in split households and are equipped to handle the legal aspects of increased changes to beneficiaries and accounts.
[1] https://www.ssa.gov/policy/docs/projections/populations/divorced-spousal-2050.html
[2] https://www.bcgbenefits.com/blog/welcome-home-grandma
[3] https://www.survivedivorce.com/gray-divorce-long-term-marriage
[4] https://www.equitablemediation.com/blog/gray-divorce
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
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