The Financial Independence Blog

The Impact of Divorce on Retirement

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In my bestselling book, Prince Not So Charming, I urge women to empower themselves to be financially independent because their Prince Charming could die, become disabled, or become a jerk.  They need to protect themselves for a financial future on their own someday- especially in retirement- even if happily married.  The follow are some statistics of the impact of divorce on retirement:

  • Historically and currently women earn less than men, save less, are in growing single parent households, support children and aging parents, and thus have less money for/in retirement because of these and other reasons outlined below.
  • Nine out of 10 women will solely be responsible for their finances at some point and time in their lives.
  • Women are 80% more likely than men to be impoverished at age 65 and older, while women age 75-79 were three times more likely to fall below the poverty level as compared to their male counterparts.[1]
  • Women’s higher rates of part-time employment and shorter job tenure make it more difficult to meet employer eligibility requirements for retirement plans versus men.[2]
  • Without income from Social Security, nearly half of all women aged 65 and older would be living in poverty.[3]
  • Many are living off of Social Security, if they are able to collect it, but there are many that don’t realize 40 “credits” ($1,220 = 1 credit) of employment are need to qualify for full Social Security benefits. And if divorced before ten years and not remarried, find they are not entitled to spousal Social Security benefits.   According to Social Security Administration, the average monthly benefit paid to a retired female worker in December 2010 was $1,022.90 versus $1,323.10 for a retired male worker.
  • Widows receive 71% at age 60 and 100% at full retirement of what husband was receiving before he died. (SSA.GOV)
  • If deciding to stay at home to raise children, at a minimum women still need to set aside a part of the household income to fund a retirement plan (limits annually on IRA, Roth IRA, =$5,500, over 50 $6,500).
  • In addition, if you were working and quit for a period of time to raise the kids, what was the income you lost by staying at home or what would it cost to bring a caregiver in if you were to go back to work, and set aside that amount in your account – after funding a spousal IRA (or other retirement plan).
  • Many consider starting a business from home and using the income to fund a solo 401(k) or other retirement vehicle. Or going back to school as many classes are also offered online, to stay current on their profession in order to be prepared to reenter the workforce.
  • It is imperative women be a part of the family finances and have a clear understanding of the income and expenses.

 

[1] J. Brown, N. Rhee, J. Saad –Lessler, and D. Oakley, 2016, “Shortchanged in Retirement, Continuing Challenges to Women’s Financial Future,” National Institute on Retirement Security

[2] Insured Retirement Institute, “Women and Retirement: Overcoming Retirement Income Challenges Facing Women” (July 2012)

[3] J. Brown, N. Rhee, J. Saad –Lessler, and D. Oakley, 2016, “Shortchanged in Retirement, Continuing Challenges to Women’s Financial Future,” National Institute on Retirement Security