Divorced Americans are at greater risk of not meeting their expended standard of living in retirement compared to the ones that haven’t, according to a new study by the Center for Retirement Research (CRR) at Boston College which was supported by Prudential Financial.
Using the National Retirement Risk Index (NRRI), researchers compared the retirement prospects of US households. In the general population, exactly half of households were reportedly at risk. For those led by people aged 30 to 39, the percentage increased to 56%
But households that have experienced divorce faced 7% greater risk of not having enough retirement income than those that didn’t go through it. The CRR also determined divorce had a greater impact on couples that remarried compared to those that stayed single after the separation.
“These are sobering numbers that highlight a fundamental shift that needs to take place in the way we think about retirement,” said Prudential Annuities President Kent Sluyter.
The outsized risks from divorce could be attributed to a number of factors. Couples who separate typically lose the economies of scale they enjoyed in marriage, such as the sharing of fundamental expenses like housing and utilities. Those that get divorced close to retirement face especially daunting challenges as they have less time to make up for assets they lost to their ex-spouse. Spouses that had served as family caretakers are also likely to not have the experience to get a job and offset the financial impact of the divorce.
The division of assets could also create difficulties. Recent research by the CRR found that roughly half of divorces involving liquid assets end with everything going to one spouse, leaving the other with nothing. Some may prefer to keep the marital home, particularly those taking custody of school-age children; however, this could have severe property tax implications, particularly for those living in high-tax cities or regions. In addition, divorcing couples stand to lose a significant amount to legal fees arising from conflicts over property and asset ownership, as well as child custody.
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