The divorce rate for people ages 50 and older has doubled in the past 20 years, according to a recent report by sociologists at Bowling Green State University. And, approximately 25 percent of divorces in 2009 occurred among those 50 and older, according to the report, “The Gray Divorce Revolution.”
Though people who divorce later in life face many of the same issues that younger people who divorce face, they also face a unique set of financial challenges. Namely, retirement.
Younger couples have the opportunity to build up their savings and retirement accounts back up after divorce, but unfortunately for older couples, time is their biggest enemy. Even older couples who have saved enough to have a comfortable retirement together will likely face financial concerns. It’s just not a pretty picture to imagine living off of just half the saved retirement amount.
So, if you’re going through a divorce later in life, here are our top tips for retirement:
#1: Have a good understanding of social security. Many older divorced workers derive a steady source of income from Social Security. The decision you will need to make though is whether you will draw the Social Security benefits you’re entitled to, or whether you will want to receive half of your former spouse’s benefit.
Under certain conditions, you can receive Social Security benefits based on your former spouse’s employment record. These conditions are: if your marriage lasted 10 years or longer and you’ve been divorced at least two years; you have not remarried; you’re age 62 or older, and you’re not eligible for an equal or higher benefit based on your own work or someone else’s work. Collecting half of your former spouse’s social security doesn’t reduce your ex-spouse’s benefits, even after your divorce is final. It’s a good option for women who didn’t work during the marriage or worked in careers that didn’t bring in a high income.
#2: Re-evaluate retirement. Perhaps your retirement plans were to travel or spend winters in a warm climate. Unfortunately, some of these goals may not be attainable after you’ve split your retirement savings with your spouse. It’s not all gloom and doom, however. After divorce some people find their dreams and goals change, and what they once wanted to do now doesn’t seem so important.
The key thing is to revisit your retirement goals and dreams after divorce and evaluate from an emotional and realistic financial standpoint. Decide what is meaningful to you in retirement, and have a plan on how to fund it financially.
#3: Be flexible. Sometimes instead of splitting their retirement savings, older divorcing couples will allocate assets differently. One spouse may take the house, and the other the retirement account. This works only when the value of the assets is similar. Also, you may want to consider taking a lump sum versus monthly payments. Taking a lump sum may slightly decrease the overall amount you receive, but you’ll be guaranteed that amount. Sometimes that is worth it if there is a high risk that your ex’s income might dry up. If that happens, your monthly payments will stop if they can’t afford to pay.
#4: Stay out of court. Settling your divorce outside of court allows you to come up with more creative solutions, rather than letting the state allocate your assets and debts based on the state divorce laws. And, going to court can use up precious funds that could be saved for living expenses versus.
#5: Consider separation. Instead of divorcing, a better option in your 60’s and later is to live in separate houses and have a formal separation agreement. For many couples, this is a less costly way to accomplish their wishes of being apart, and their retirement income stretches further than it would if it was split in two and supporting two separate households.
Due to the unique complexities facing older divorcing couples, it’s a good idea to seek out a qualified divorce financial planner who can guide you to the best solutions for your situation. If you are in Southern California and need a recommendation, please feel free to call our office at (714) 841-1931 and we will be happy to help.