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Divorce Can Hinder Retirement ReadinessPeople who have divorced are more likely to be financially unprepared for their retirements, according to a 2018 study by the Center for Retirement Research at Boston College. The study uses the National Retirement Risk Index, which estimated what percentage of households will be unable to maintain their pre-retirement standard of living. According to the study, households with an adult who has divorced are seven percentage points more likely to be at risk than households that have not experienced divorce. To put the number in context, the Great Recession increased the overall NRRI by nine percentage points. Understanding how divorce affects retirement may help divorcees adjust their retirement plans.

Reasons for Risk

Divorce is often associated with short-term costs, such as legal fees and assets lost in the division of property. However, there are several ways that divorce can hinder your ability to save towards retirement:

  • You must include your retirement plan in the division of property, whether you divide it or give your spouse other assets;
  • You will need more of your income for your daily living expenses, which takes away from the money you save for retirement;
  • Paying child support or spousal maintenance also takes away from your savings;
  • If you earned a majority of your household’s income, you may be in the same tax bracket but without the savings of filing your income taxes as married;
  • Becoming single may limit your credit; and
  • You may not receive full value from selling a property such as your home, depending on market conditions.

These costs of divorce can be a setback in your retirement savings plan. The younger you are when you divorce, the more time you will have to adjust your retirement plan.

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