Planning & Divorce

How Does Divorce Compound Retirement Risk?

Better education is needed to help consumers build and protect retirement income

New research from Prudential Annuities points to an income-inadequacy for many American Households.

June 18, 2018 — NEWARK, N.J.–(BUSINESS WIRE)–Divorced Americans are at greater risk of not being able to maintain their standard of living in retirement, according to new research conducted by the Center for Retirement Research at Boston College with the support of Prudential Financial, Inc. (NYSE: PRU).

The research study, which compares the risk divorced households face using the center’s National Retirement Risk Index (NRRI), reveals divorced households have a 7 percentage point greater risk of not having adequate retirement income than households that have not experienced divorce. Among all households, exactly half are at risk of not having adequate retirement income.

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

For example, Sluyter said, annuities can offer a layer of protection because they can come with guaranteed income and other features to help generate income to supplement other retirement savings. And for people who are divorced or are contemplating divorce, annuities can be particularly important, particularly for the spouse with lower income.

How divorce compounds an already worrisome process

The study’s findings show that on top of the normal retirement worries, divorced couples are dealing with legal fees, splitting assets and increased living expenses, and they must find ways of making up for that loss. Sluyter noted that whatever course of action people take, whether divorced or not, access to financial planning and advice is key.

“Prudential, along with 23 other companies, recently established the Alliance for Lifetime Income with the goal of promoting greater understanding of how annuities can protect retirement income and help grow retirement savings so consumers can make informed decisions about the options that are right for them,” Sluyter said.

James Mahaney, a vice president in Prudential’s Strategic Initiatives unit, author of a companion paper to the NRRI study, agreed. Mahaney says that the Tax Reform and Jobs Act will likely make it much harder for divorced spouses to secure their financial futures, but notes that new planning opportunities have arisen as well. He recommends people who are divorcing or contemplating divorce consider some key financial issues such as:

  • Alimony
    Alimony has been tax-deductible to the spouse who pays it, typically the higher earner. The spouse receiving it must report it as taxable income. But that may be offset somewhat by the higher-earning spouse passing along some of their alimony tax savings to the lower-earning spouse. That all changes in 2019, when alimony is no longer tax-deductible for new divorces going forward. This is likely to result in lower alimony being paid due to the higher taxes the combined former spouses must now pay.
  • Investments
    After a divorce, individuals may find themselves in a lower tax bracket, which can be a benefit if they qualify for a 0 percent capital gains tax rate, making investing more affordable and rewarding.
  • Home ownership
    Many individuals, especially mothers of school-age children, often prefer to keep the marital home when divorcing. However, home ownership in high-tax states may become less attractive under the new tax law.
  • Children and taxes
    Although personal exemption deductions have been temporarily eliminated from the federal tax code, they have been replaced by child tax credits, which are more valuable than deductions. The credits reduce an individual’s tax burden on a dollar-for-dollar basis. Determining which parent can claim a child post-divorce may now be even more critical.
  • Social Security
    Lower-earning spouses planning to divorce and who have been married for at least 10 years may be eligible for a Social Security spousal benefit or survivor benefit that could exceed their own benefit. Those impacted should consider how their Social Security benefits can be integrated with annuities and other savings to generate adequate amounts of secure lifetime income.
Instead of solely thinking about accumulating savings, people also need to consider a plan for protecting and generating retirement income...

“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,” Mahaney said. “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.”

For more information, read the National Retirement Risk Index research and Prudential’s perspective, “Planning for Retirement: The Impact of Divorce.” You can also access calculators and other tools to assess your retirement readiness on




About Prudential Financial
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