“GRAY” DIVORCE

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7 Steps to Being Prepared to Be Single After Retirement

Libby Wilkins, CDFA™

A divorce can be draining— both emotionally and financially.  Especially later in life, and more and more people are getting divorced later in life.  Just one in 10 people who divorced in 1990 was aged 50 or older; twenty years later it was one in four. For those over age 65, the divorce rate has tripled.

Later-in-life divorce can hit women especially hard.  After a divorce, household income drops by about 25% for men—and more than 40% for women, according to U.S. government statistics.  So-called “Gray Divorce” can be economically devastating, particularly for women who have been out of the labor force.  Meanwhile, women’s life expectancy is increasing, meaning that they may be living longer– with less.

No matter what happens, becoming single is stressful—at any age, but especially during your retirement years.  If you find yourself facing a situation where you may become financially solo, the following tips may help you prepare, just in case.

  1. ACTIVELY MANAGE AND PLAN YOUR FINANCIAL FUTURE

Whether retirement planning and investing interest you or not, both you and your spouse should be active participants.  When there are meetings with your financial advisor or attorney, make sure you are present and involved in the discussions.  While you may fully trust your spouse to handle your finances, you still need to know what’s going on so that if you are left alone, you can continue with those plans without feeling overwhelmed or confused.

  1. CALCULATE YOUR POTENTIAL INCOME AND EXPENSES

Probably the most important part of contingent planning for our retirement years is figuring out how to live on just one income instead of two.  For many women, their household income will decrease significantly after the end of their marriage, whether through death or divorce.

Planning for life if you survive your spouse is financially easier than contingencies for a late divorce.  In a divorce, you are often dividing most of your assets, including your home, and then determining how best to live off of what is left. However, a widow still has the use of most, if not all, of their combined assets and potential survivor pension benefits.

  1. DETERMINE YOUR AVAILABLE INCOME

Making contingency plans gives you insight into your options and courses of action.  A key piece of information is what income you will still have available to you in either situation.  You can easily calculate your survivor income and Social Security benefits if you are widowed, but income for a potential divorcee is more complicated.  Start with what income sources you will have available to you in your name and determine what the best Social Security claiming options might be (see further comments below).

  1. CREATE A MOCK BUDGET

Once you have a better idea of your potential income, compare that to your expenses.  Create a mock budget and determine where you may need to make adjustments.  One way to make sure that you will still be able to meet monthly obligations if you are single in retirement is to have a plan in place to pay off large debts before retirement.  If items that make up most of your monthly expenses are paid off, that will free up your budget each month and make it easier to pay your household expenses.

  1. REVIEW YOUR SOCIAL SECURITY CLAIMING OPTIONS

Social Security offers several claiming strategies for former spouses, whether you are widowed or divorced.

  • For a widow: If your spouse worked long enough under Social Security, you might be eligible to receive reduced benefits as early as age 60—age 50 if you are disabled.
  • For a divorced spouse: Social Security benefits are not assets that a divorce court can divide. In general, if your marriage lasted 10 years or more and you’re 62 or older, and have not remarried, you can collect retirement benefits on your former spouse’s record, even after your divorce.
  • What if I remarry:  Usually you can’t get widow’s benefits if you remarry before age 60. But remarriage after age 60 won’t prevent you from getting benefits based on your former spouse’s work.  At age 62 or older, you can get benefits on your new spouse’s work, if those benefits would be higher.
  1. CONSIDER YOUR HEALTH

Long-term care has always primarily been a women’s issue.  There are never as many men as women in assisted living facilities.  Medicare does not cover many costs of long-term care, making it an expense that can completely derail your financial well-being in retirement.

Consider what the impact would be if you were suddenly faced with additional monthly expenses of $4000.00 or more.  How would that impact the ability of your assets and income to sustain those costs for any extended period?

  1. HAVE AN EMERGENCY FUND

No matter what age you are, you should have an emergency fund, but it is particularly important during your retirement years.  Should something happen to your spouse, a strong cash cushion can give you the necessary time to sort through your finances and make important decisions without feeling pressured, which may lead to poor choices.

While divorce is challenging at any age, it is particularly important to protect and plan for your financial future when divorcing later in life.  At Landmark, we can help set you up for success in your life’s next chapter.

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