More and more Americans are relying on their retirement savings to cover their living expenses
James McBride, certified financial planner at McBride Group, explains what drives people to dip into their savings earlier than planned.
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The divorce rate has doubled for Americans over 55 since 1990. For couples over 65, the rate has tripled.
And financially speaking, few “gray divorcees” are better off.
Federal data show that Gray divorce has increased sharply in recent decades, even as divorce rates among younger Americans have declined.
“One in ten people who get divorced today is 65 years old or older. That’s remarkable,” said Susan Brown, distinguished professor of sociology at Bowling Green State University in Ohio. “A growing proportion of aging adults will age alone.”
According to researchers, several demographic factors have shaped the gray divorce phenomenon: The American population is aging. People stay healthy longer. Couples get married later.
A divorce against a Gray is associated with high costs
In dollar terms, divorce is costly for everyone. However, the costs are higher for older Americans.
“I haven't seen a scenario where either partner is better off financially,” said Elizabeth Windisch, a certified financial planner in Denver.
According to research by Brown and her colleagues, after a gray divorce, a man can expect a 21% decline in his standard of living. A woman's standard of living will decrease by 45%. Both partners' assets fall by half.
Women seem more likely to initiate a gray divorce, Brown said. And women tend to be worse off after a breakup, at least financially. Women are more likely to take custody of the children and thus bear the costs. Women who divorce after age 50 tend to have less work experience than their partners, which means less potential for future earnings.
Here are some of the biggest financial challenges older Americans face after a divorce and tips for overcoming them.
Restore your failed retirement plan
Problem: A gray divorce can drain your retirement account, leaving you with little to no time to rebuild.
Solution: Make a new plan. If you're not yet retired, save heavily to replenish your savings.
In a gray divorce, a couple's joint retirement savings can be redistributed into equal shares, one for each partner.
That might not sound so bad until you consider all the other costs that come with divorce: finding a new home. Shopping for new health insurance. Paying legal bills.
“It's twice the cost of pretty much everything,” said Michelle Crumm, a certified financial planner in Ann Arbor, Michigan.
Crumm represented a client who was divorcing at age 50. She was a high-ranking executive. Her husband was a stay-at-home dad.
“She had to give him half of her 401(k). She has to pay him support,” Crumm said. “On paper it looks like this woman is making a lot of money, but in reality there isn’t much left.”
Crumm told her client that her top priority should be “getting her retirement plan back on track.” That meant maxing out “everything she could” on retirement savings and diverting more of her income into her sunken 401(k).
“She realizes she still has a lot of work to do to catch up,” Crumm said. “She leases a car every year. So we had the conversation: ‘Should you buy a car?’ Maybe I’ll vacation in the US instead of Europe.”
The client's oldest daughter is about to start college. Due to the mother's high salary, the daughter is expected to pay full price upon enrollment.
The client would like to send her daughter to a private facility. Crumm advised her to go public instead: The flagship University of Michigan charges about $35,500 in in-state tuition, fees and living expenses, less than half the full cost of an elite private college.
Crumm summed it up: If the daughter spends four years at a private college, the mother may have to delay her retirement by that many years.
“She originally said 62,” Crumm said. “I said, 'We're probably looking at 65 or 67.'”
Now mother and daughter are faced with a difficult decision.
Returning to work after a long break – or not
Problem: Here's how to make money after a divorce if you haven't worked for years.
Solution: Find out if you can live comfortably without having to return to work, even if it means a tighter budget.
A gray divorce can be particularly disheartening for an aging spouse who decades earlier gave up their career to start a family.
Patti Black, a certified financial planner in Birmingham, Alabama, worked with a client in her 50s whose husband of three decades was filing for divorce.
The woman lived in her dream home, now an empty nest, counting down the years to a prosperous retirement.
“I think she hadn’t worked in 25 years,” Black said.
The woman soon realized that she would never find a job with a salary even close to her husband's salary.
“We worked very hard to come up with a plan so she didn’t have to go back to work,” Black said. That meant giving up the dream home, buying a smaller one and living on a reduced budget.
Now she's waiting for the dream home to sell.
Division of the family house
Problem: What to do with the marital home?
Solution: Consider all the costs of owning and maintaining the home before deciding who, if anyone, gets it.
In a gray divorce, any marital home can feel like an asset – or a liability.
Let's assume the home has $250,000 in equity and a remaining mortgage term of 10 years. If the settlement leaves the home to one spouse, that spouse will likely also inherit the mortgage payments. And property taxes. And insurance. And maintenance.
If the spouse chooses to refinance the mortgage, that could mean giving up a loan with a historically low interest rate and instead getting a new loan at rates in 2024 that are much higher. The same problem arises if the couple decides to sell the old house and buy two new ones.
“This can be a big problem for divorcing couples,” said Monica Dwyer, a certified financial planner in West Chester, Ohio.
If the numbers don't add up, the experts consider downsizing.
Do you think you will work past 70? Good luck. Why most of us retire earlier.
A gray divorce brings with it many other financial complications, from Social Security benefits to health insurance to estate plans and credit card debt.
It's almost enough to make you think.
“Consider the cost,” Black said. “Maybe you’re trying to get through it. Maybe the money would be better spent on marriage counseling rather than a divorce lawyer.”
Daniel de Visé covers personal finance for USA Today.