Divorce can negatively affect each person’s current and future finances in many ways, including by increasing the risk that they will not be able to maintain their standard of living in retirement, according to the Center for Retirement Research.
“Divorcing couples must pay legal fees, split illiquid assets, and lose the economies of scale from having one instead of two households. These changes almost certainly inhibit each spouse’s ability to save for retirement,” it said.
The report said that someone’s retirement is deemed to be “at risk” in the National Retirement Risk Index if the projected rate to replace current income in retirement falls 10 percent or more below the level needed to maintain current living standards. By that definition, it added, 50 percent of households were at risk in the 2016 index, down slightly in recent years from a peak of 53 percent in 2010.
Within the total, “53 percent of households that have gone through a divorce are at risk in retirement compared to 48 percent for households without a divorce.” After controlling for certain factors such as age and income level, it added, the difference becomes slightly larger, a 7 percentage point difference rather than 5 percentage points.
“To get a sense of whether that amount is big or small, consider that the Great Recession increased the NRRI by 9 percentage points. So the impact of divorce is quite substantial,” it said.