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Gray Divorce Reduces 401k Plan Assets

Gray Divorce

Gray Divorce Reduces 401k Plan Assets

Gray Divorce rates are impacting the value of many items. The sad news is gray divorce can impact retirement plans for many older Americans.  The impact of Gray Divorce rates can be particularly devastating for women.

Gray divorce is a demographic trend resulting from the increase in the divorce or separation of older couples — typically those over 50 — who have been married for a long time. Gray divorcees are also known as “silver or diamond splitters,” a nickname derived from their gray or silver hair color, according to Forbes. Gray divorce rates have more than doubled since 1990, according to a 2017 study from Pew Research Center. The gray divorce rates of older Americans are rising; at the same time, they are falling for those under 45.

As part of gray divorce rate proceedings, the couple’s retirement assets typically get split between them. Retirement accounts are the biggest source of contention in gray divorce cases, after alimony. Gray divorce can have an alarming impact on older individuals’ wealth in retirement. An article that appeared in July in Bloomberg News quoted data from the National Center for Family & Marriage Research, which found that an individual who goes through a gray divorce after age 50 can expect their wealth to decline by around 50%. Incomes tend to drop significantly after gray divorce, too, especially for women. In fact, women who go through a gray divorce after age 50 can expect their standard of living to fall by 45%, compared to a 21% decline for men.

Gray divorce can have dire consequences for women. American women age 63 and older who’ve gone through a gray divorce have a poverty rate of 27% — more than any other group that age, including widows — and nine times that of couples who stay married, according to a 2017 study, also from the National Center for Family & Marriage Research.

According to 401kspecialist, “Women often fare worse financially in the wake of divorce due to a number of factors, including decisions to “keep the house” while the ex-husband keeps the retirement account; a potential Social Security penalty in the event they didn’t work enough to qualify for benefits on their own (she receives half the Social Security benefits of her ex if they were married 10 years or more unless she remarries); and the potential loss of health insurance under the ex-husband’s employer.” In addition, while net worth falls exponentially after gray divorce, daily expenses tend to stay the same.

Why is gray divorce on the rise? Many Boomers are on their second and third marriages. Remarried people over age 50 are twice as likely to divorce again. For those ages 55-64, the number of gray divorces rose from five to 15 per 1,000, and from 1.8 to five per 1,000 for those 65 and older. If the rate of gray divorce remains at current levels, about 828,000 Americans over 50 will split by 2030, again according to the National Center for Family & Marriage Research.

Gray divorce can have a devastating impact on older Americans’ retirement savings. Moreover, gray divorce could derail older workers’ retirement intentions, prompting them to remain on the job longer than they otherwise might have. The implications of gray divorce are potentially widespread, and the long-term outcomes are detrimental to the wealth prospects of older Americans, especially women. Retirement plan sponsors should keep an eye on this growing trend and its impact on older employees’ retirement assets and aspirations.

Steff Chalk

Steff Chalk

Managing Editor at 401kTV
Steff C. Chalk is Executive Director of The Retirement Advisor University, a collaboration with UCLA Anderson School of Management Executive Education. Steff also serves as Executive Director of The Plan Sponsor University and is current faculty of The Retirement Adviser University.
Steff Chalk
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