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Easing the Financial Impact of Divorce in Retirement

Splitting after 50 can make it tougher to manage your money

Divorces are skyrocketing for people in their 50s and 60s. Between 1990 and 2012, the number of divorces among people 55 to 64 more than doubled and tripled for those 65 and older, according to a study by Susan Brown, I-Fen Lin and Krista Payne of Bowling Green State University.

On top of the personal pain, divorcing spouses often face extraordinary financial pain.

Recovering From a Gray Divorce

As the Bowling Green researchers’ report, Marital Biography, Social Security and Poverty, noted: “Those who divorce earlier in adulthood have more time to recoup the financial losses divorce usually entails. In contrast, those who divorce later have fewer years of working life remaining and may not be able to fully recover economically from a gray divorce.”

Said Christine van Cauwenberghe, assistant vice president of tax and estate planning with the Investors Group financial advisory firm in Winnipeg, Manitoba: “Going through a divorce can be difficult at any age, but older couples face unique challenges in retirement planning as a result of later-in-life separations.”

Going through a divorce can be difficult at any age, but older couples face unique challenges in retirement planning.

— Christine van Cauwenberghe, financial adviser

Van Cauwenberghe added that because divorce is an emotional process, it “can cloud your ability to make sound financial decisions that will ultimately affect your future.”

Reassessing Your Financial Plan

That’s why, if you’re divorcing in your 50s or 60s, it’s crucial to reassess your financial plan to ensure that it reflects your new direction in life.

Although the freedom divorce offers may be refreshing, the danger in becoming single at a later age is being one step closer to retirement without a partner and potentially with half the income.

“The older someone is when they divorce, the less time they have to recover financially,” said Mark Baer, family law attorney and mediator in Pasadena, Calif.

Changing Beneficiaries and Power of Attorney

As a newly single person in or near retirement, you’ll want to be sure to change the primary and contingent beneficiary information on all your life insurance policies and pension and retirement accounts. “It’s the most overlooked, and also the most important, action to take after a divorce because beneficiary designations supersede any will,” said Gary Plessl, a certified financial planner, CPA and managing partner with the Houser & Plessl Wealth Management Group in Allentown, Pa.

Changing the designated power of attorney on estate planning documents is just as important and can be a matter of life or death.

“Most people don’t want their ex-spouse making medical or financial decisions for them in the event of incapacitation,” said Kevin Houser, a certified financial planner and managing partner at Houser & Plessl. “If the power of attorney is not changed, your new spouse, your children or some other relative might have to fight this in court to change it. And that can get very expensive fast because of legal fees.”

Use the Catch-Up Rules for Retirement Saving

To help your finances recover faster after a post-50 divorce, try to take advantage of the catch-up rules for retirement contributions. They let people 50 and older stash more in 401(k) and IRAs than younger people.

In 2016, the catch-up provision lets you save an additional $6,000 over the standard $18,000 limit for 401(k)s and an extra $1,000 in a traditional or Roth IRA beyond the normal $5,500 maximum.

“If you are already retired, increasing your contributions is more difficult,” said Plessl, co-author with Houser of The Book on Retirement: Are You Ready for the Second Half of Your Financial Life?  “Your options are to get a part-time job, live off less, or invest your assets more aggressively while cutting back on retirement distributions.”

Debt and Cash Flow

Typically, divorced couples split marital debt, but paying off loans and credit cards later in life can be difficult due to cash flow issues. So this is also something you’ll want to focus on, perhaps with the help of a financial adviser or credit counselor.

“There is only so much money to go around and hard decisions need to be made regarding whether to put money towards retirement savings or paying down debt,” said Houser.

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