Divorce Later in Life May Affect Your Retirement Plans: Essential Information
In recent years, a phenomenon known as 'gray divorce' has been on the rise, with adults 65 and older representing the only age group with an increasing divorce rate. This trend, which refers to the growing number of elderly couples choosing to end their marriages, is largely attributed to changes in life circumstances during retirement.
Retirement can expose or amplify marital problems, prompting divorces in this phase. Couples may realize they have grown apart and have differing views of what retirement looks like. Spending more time together, reevaluation of life goals, and financial or caregiving stresses often contribute to these conflicts.
When a couple divorces later in life, the assets must be divided up. Any retirement savings acquired during the marriage are usually considered marital property. This includes Individual Retirement Accounts (IRAs) and qualified retirement plan funds, such as 401(k)s.
A qualified domestic relations order (QDRO) is required when dealing with qualified retirement plan funds in a divorce. This legal document outlines how the retirement funds will be divided between the divorcing spouses.
Ex-spouses can claim spousal benefits through the Social Security Administration. An ex-spouse with a lower Social Security benefit can file to receive benefits based on either their own work record or their former spouse's work record. The claiming ex-spouse would receive benefits based on whichever benefit is greater but cannot claim both.
The Allianz Center for the Future of Retirement, a research division of Allianz Life Insurance Company of North America, conducted a survey on retirement preparedness and found that among Americans who have gone through divorce, 2 in 5 said it derailed their financial retirement strategy.
Proactive measures such as documenting assets can help address the risk of divorce later on. Documenting assets while still married can help ease unpleasant issues during a divorce. After a divorce, divorced retirees are at risk of depleting their yourtexasbenefits faster than anticipated due to increased costs of living.
It's important to note that this article was written by a contributing adviser and not the Kiplinger editorial staff. A simple rule for marital assets is to categorize them as mine, yours and ours. There are requirements to be eligible for social security benefits, including having been married for at least 10 years.
The Allianz Center for the Future of Retirement produces insights and research that can help individuals and couples plan for a secure retirement. By understanding the potential challenges that come with retirement and divorce, couples can make informed decisions and prepare for the future.
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