Divorce and Failing Health Amid Overlooked Retirement Roadblocks

Clients and advisers alike often overlook the possibility of divorce or losing a spouse in their financial planning, according to TD Ameritrade’s latest survey.

TD Ameritrade’s Financial Challenges of Divorce and Widowhood survey of 2,000 adults ages 37 and older gives insight into the financial lives of the 25 million divorced and 14.5 million widows/widowers in the U.S.

The analysis is stark in some respects, but also includes points of optimism. Overall, according to survey results, 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.” And so these issues of are paramount importance for all advisers and clients to consider.

Naturally this may be a challenging conversation for some advisers or clients, but researchers argue it does not have to be: “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.”

As it stands today, married couples are not sufficiently addressing this topic with their advisers. Fully two-thirds of married individuals say they 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 and six in 10 women also say they are confident in their abilities to manage their own financial situation in the event of a divorce or a spouse passing away.

TD Ameritrade researchers warn this task often proves far more difficult and damaging than couples anticipate: “Married individuals report an annual personal income of $61,700. That is $13,100 more than widows/widowers and $9,800 more than those who are divorced.”

David Lynch, managing director and head of branches for TD Ameritrade, says advance planning could provide a much needed boost in financial security for those who “unexpectedly end up alone at any phase of their lives. Compared to the 43% of married Americans who currently feel financially secure, just a quarter of divorced people say the same. In an average month, nearly half of divorced individuals are not saving or investing any of their take-home pay, versus 32% for their married peers.”

The financial implications of losing a spouse

The survey data shows only two in five divorced individuals expect to “fully retire,” compared with 47% for married couples. At the same time, just three in 10 divorced Americans expect to be “very financially secure” in retirement, versus 52% for married respondents.

“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 warns. “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.”

Additional survey findings show about half of divorced individuals are worried about running out of money in retirement. Nearly four in 10 widows feel financially secure currently and slightly more expect to be very financially secure in retirement—both sharp increases compared to their divorced counterparts.

Widowed Americans, on average, expect that 46% of their retirement income will come from Social Security, while their married peers expect only 29% of their retirement income would come from Social Security.

The full report is available for download here.