Preventing “Gray Divorce” from Wrecking Your Retirement

Gray Divorce

Divorce rates may be going down, but they are going up a lot among those 50 or older. This is a time in our lives where we are particularly exposed to the financial risk of divorce.

We would think that couples who make it to age 50 and beyond certainly should be less prone to divorce than younger people, This seems to makes sense when you consider that those who have made it this far have a much stronger history together and their relationships are more time tested, but we may be surprised to learn that the risk is actually higher at this time in our lives.

Divorce rates have gone up a lot over the very long term. Back in the 1870’s, it sat at just 0.3 divorces for every 1,000 Americans, and steadily grew over the years to rise to 4.7 divorces per 1,000 people in 1990.

Over the last 25 years, it’s actually been on the decline overall, and now sits around 3 per 1,000. During the very long period of increase, people’s reluctance to get divorced for various reasons slowly evaporated, and while we haven’t regained our reluctance toward it, perhaps people are more effectively working out their issues due to better communication.

Given this, we would expect that divorces with people over 50 would have enjoyed at least a decline in divorce since the overall rate started going down, and probably even leveraging their tenure to lead the way.

When we look at how this all breaks down though, we see a different story, and one that may surprise us. According to Pew Research, it’s actually the younger people that are leading this transition downward, with those 25-39 seeing a 21% decline. Those 30-49 have actually seen divorce rates go up, by 14% over the last 25 years.

When we look at people 50 or older though, the story really turns, and we’ve seen an increase of 109% of these so-called gray divorces since 1990. These are the years where people are consolidating their retirement plans and can be particularly prone to having them derailed by the economic stress that divorce can have upon them.

If one is over 50 and have re-married, the risk is even greater, and re-married couples in this age group are twice as likely to divorce as those still in their first marriage during these years.

When we view divorce rates among those who are actually in their retirement years, those 65 or older, divorce rates have risen even more dramatically, and we’ve not only seem them triple in the last 25 years among seniors, their overall divorce rate is roughly double what we see in the population generally, at 6 divorces per 1,000 people in this age group.

Divorce Causes Additional Financial Stress in Our Later Years

Dealing with a divorce in the years leading up to retirement is one thing, but having the divorce occur when you are already retired can be even more difficult to deal with financially. On the road to retirement, we can adjust our plans to accommodate changes, including divorce, and often divert more resources to it as the need arises, but after we’re retired, we usually do not have this luxury as the die have already been cast for the most part.

Divorce usually places a lot of financial strain on both parties, and this type of strain is particularly hard to deal with during one’s later years. Our retirement plans that we’ve spent so long and put so much into crafting become so subject to getting dashed, so we need to ensure we are making the best effort that we can to deal with this crisis.

This not only applies to those who have already in divorce, as those who may feel that they are at greater risk of divorce scrambling their retirement plans are also wise to at least have well-thought out contingency plans to help guide them through this should the worst happen.

Among the biggest concerns with gray divorce is the loss of income that we see without a corresponding reduction in expenses. We may plan carefully for our retirement needs, where we project what our expenses will be at that point, and come up with an amount of income that we’ll need to sustain this.

As we get closer to retirement, our income potential in retirement becomes more range bound, as less years to save means less opportunity to manage it. Many retirees don’t achieve their savings and income goals and already are forced to cut back on spending more than they would like once retirement arrives, so an event that causes us to fall well short of our income goals is going to place further pressure on our spending, perhaps a lot more.

While retirees do get a portion of their income from pensions, they also rely on their savings, and the loss of a partner involves both losing their income and their assets. These assets serve to both supplement their income and provide a resource to deal with unplanned expenses, and both elements are lost in divorce.

While we are left with our own pension income and assets, both are subject to revision by divorce, so we not only lose our partner’s income and assets, we also are subject to losing part of what we would normally claim as our own, what we would have if we remained single.

Not only may your estranged spouse have a claim on part of your savings, they may also take a part of your pension benefits as well. This can place you in a difficult situation indeed as you attempt to survive the financial aftermath of divorce.

Trying to Manage This Situation as Best We Can

There may not even be a whole lot that you can do to help yourself, depending on the situation, especially if this happens after retirement, but this does not mean that financial planning is futile at this point, and in fact there may have never been a time where it has been more important.

Perhaps the first thing to focus on is how the divorce may affect your credit rating, and the combination of the financial stress of divorce and disputes about who owes what with jointly-held debt often causes the credit rating of both parties to tank. Older couples may be less prone to this due to a lighter debt load, but they still may be at risk.

Divorce in retirement, provided one stays single, doesn’t usually offer much opportunity to increase one’s income or to even mitigate the income and asset shortfalls that result, so most of the effort here needs to be toward getting the most out of what you have left. Expense management is therefore the real key in this situation.

Those who are just approaching retirement have more freedom to help themselves on the income side of the spreadsheet, including delaying retirement to a point where it may become more sustainable. We usually can’t work forever though, but the more time you have to where you absolutely will have to retire, the better.

In all cases though, expense management is critical. This is how you set yourself up to save money in all circumstances, by spending less than you take in, and while we may have to make some real changes here if divorce happens that are uncomfortable, we trade some discomfort now for even more later if we do not do the right thing.

There’s also the potential for entering another relationship again, which may or may not involve re-marriage. The rate of unmarried couples living together among seniors has shot up a lot over the past while, and at least some of this may be inspired by the financial advantages that this can provide.

Divorce is unpleasant at any age, both emotionally and financially. Given that those over 50 are particularly exposed to the financial hardship that results from divorce, being so close to retirement or even already in it, we really need to double down on our financial management if this happens or may be likely to.