Danger: Divorce May Disrupt Retirement Outlook

401k, divorce, retirement, annuities, Prudential, CRR

This sucks.

Divorce isn’t easy. As if the emotional toll it takes isn’t difficult enough, ending a marriage is financially upsetting, as well.

Understandably distracted, there’s one area spouses often give little thought to when in the midst of a split: retirement.

Prudential, informed by a new study from the Center for Retirement Research (CRR) at Boston College, wants to warn divorcees that they’re at greater risk of falling behind when it comes to saving enough to retire comfortably.

According to the Center’s National Retirement Risk Index (NRRI), 50 percent of all households may have inadequate retirement savings. Among households that have experienced divorce, the chance of coming up short is even worse—approximately 57 percent won’t have enough money.

“Millions of American households are at risk for not having adequate retirement income, and the challenge is even more acute among divorcees,” Kent Sluyter, president of Prudential Annuities, said in a statement.

“These are sobering numbers that highlight a fundamental shift that needs to take place in the way we think about retirement. Instead of solely thinking about accumulating savings, people also need to consider a plan for protecting and generating retirement income,” he added.

Sluyter recommends annuities for spouses considering divorce, especially for the lower-earning party, as annuities can provide guaranteed lifetime income to supplement payouts from other retirement income streams. He also says everyone—no matter their relationship status—should engage in financial planning and consult an advisor.

In addition, Prudential’s report encourages retirement savers facing divorce to factor legal fees, splitting assets and increased living expenses into their financial outlook, in addition to:

“With so many factors to consider, it is more important than ever for divorcing couples to assess their financial plans and find opportunities to stretch their wealth and think about future income streams as they prepare for retirement,” concluded James Mahaney, vice president of Strategic Initiatives at Prudential and author of a companion paper to the NRRI study.

“This is especially important for women, who not only tend to be the lower earner, but also receive less alimony under the new tax law.”

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