Women’s Retirement Readiness & Divorce
Women typically fall behind men when it comes to being ready for retirement.
This is mainly because of factors such as the well documented gender pay gap, time off from full or reduction to part-time employment to raise children and because of a shorter time in the workforce due to a myriad of factors including caregiving for elders.
The TIAA research found that while men typically contributed $8,271 annually to their employer’s retirement accounts, women only contributed $5,994. Research from insurance company Nationwide found that because of inflation, 62% of women are planning to retire later than they hoped. And during times of financial strain, women are more likely to discontinue contributions to retirement plans and preserve their cash flow for living expenses.
While both men and women would benefit from additional education and seminars regarding emergency savings programs, student loan paydowns and repayment benefits now offered by Secure Act 2.0, women especially would be better prepared for retirement.
Divorce and Retirement
Exacerbating this disparity, is an increase in divorce among women nearing retirement age. Women have to learn to ride the divorce wave and make decisions during such a tempestuous time that provide financial security both in the present and in their future.
This may mean forgoing the family home in property division and using the proceeds from the sale to feather an emergency savings account and to contribute catchup money in their 401K and IRA. Other considerations for making up this disparity in retirement funding are not foregoing the marital portion of retirement accounts and ensuring that the tax impact of division of assets is factored in.
There are many decisions that accompany the division of assets. The timing of when to initiate Social Security benefits either on one’s own work history or on that of her ex-spouse is a critical factor as once the decision is made, it cannot be retracted. Although a spouse can claim the greater of one-half of the ex-spouse’s work history or one’s own at 100%, often one-half of the spouse’s is the greater amount. If the women can defer until age 70, she would earn up to 8% per year more from her full retirement age benefit. This is a huge difference in the amount of the benefit to be received.
There is also the timing of distributions from any IRAs or 401(k) accounts. Since required minimum distributions have now been deferred until age 75 for those age 62 or older in 2023, it allows the deferral of income and taxes to accrue for a longer period of time if the woman can wait to take the withdrawals. Often this is not the case.
How the assets will support the woman in retirement is a critical consideration in the process of selection and division of assets.
This article does NOT constitute legal advice and is for general information purposes ONLY. Prior to making any decisions, seek legal counsel from a licensed attorney.
