Death, Divorce Detriment to Retirement Planning

No different than planning for major illness, disability or potential long-term care needs

401k, death, divorce, TD AmeritradeThis just makes us sad.

Till death do us part—or not.

A new survey takes a look at harsh realities and their effects on retirement planning. While no one sets out expecting the worse, it nonetheless makes sense to plan for their possibility (which is really the entire reason for “planning”).

Specifically, TD Ameritrade finds that a large number of married Americans overlook the possibility of divorce or losing a spouse in their planning. The unfortunate reality is that approximately four in 10 marriages eventually end in divorce and about a quarter of Americans age 65 and older are widowed.

Married people aren’t planning for these possibilities

  • Two-thirds of married individuals don’t have a financial plan in place in the event of a divorce or becoming widowed.
  • Despite the lack of planning, seven in 10 men (72 percent) and six in 10 women (62 percent) are confident in their abilities to manage their own financial situation in the event of a divorce or a spouse passing away.
  • Married individuals report an annual personal income of $61,700 – that’s $13,100 more than widows/widowers and $9,800 more than those who are divorced.

“Advance planning could provide a much-needed boost in financial security for those who unexpectedly end up alone at any phase of their lives,” David Lynch, managing director and head of branches for TD Ameritrade, said in a statement. “Considering divorce or the loss of a spouse is a smart addition to any long-term financial plan. It’s no different than planning for things like a major illness, disability or potential long-term care needs.”

Divorce a harsh, long-term financial reality for many

Compared to the 43 percent of married Americans who currently feel financially secure, just a quarter of divorced people say the same. In an average month, nearly half (47 percent) of divorced individuals are not saving or investing any of their take-home pay, versus 32 percent for their married peers.

  • Two in five (41 percent) divorcées/divorcés expect to fully retire (versus 47 percent married).
  • Just three in 10 divorced Americans expect to be very financially secure in retirement (versus 52 percent married).
  • About half of divorced individuals (49 percent) are worried about running out of money in retirement (versus 38 percent married).

Losing a spouse may be less financially damaging than divorce

Nearly four in 10 widows (39 percent) feel financially secure currently and slightly more (42 percent) expect to be very financially secure in retirement, both sharp increases compared to their divorced counterparts.

  • However, in an average month, two-thirds (67 percent) of widows/widowers are not saving or investing any of their take-home pay.
  • Widowed Americans, on average, expect that 46 percent of their retirement income will come from Social Security while their married peers expect only 29 percent of their retirement income would come from Social Security.

“On average, women may outlive their husbands by five years or more. And though the average age for becoming widowed is 59, it can happen at any time in your married life,” Lynch added. “Married people of all ages should take steps now to ensure they are involved in both big and small family financial matters. They should understand their household assets and liabilities, and ideally, consider establishing multiple income streams that would help them better control their financial futures.”

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