In the story-book narrative, couples get married, usher their children out of the nest and enjoy the prime of their lives together until death do they part. In reality, the rate of divorce among Americans age 50 and older has more than doubled since the 1990, according to an analysis by the Pew Research Center.
While there may be many contributing factors - including longer lifespans, age-defying drugs and procedures - Pew attributes this rise in so-called "gray divorce" to baby boomers on their second or third marriages. Among people over 50, people who are remarried are twice as likely to divorce.
Whatever the cause, divorce can have a devastating financial impact - adding a whole new kind of stress to retirement planning. "There is a division of assets, and a division of income, but without a comparable drop in expenses," says Paul Gaudio, a CFP and wealth planning strategist with Bryn Mawr Trust in Princeton, New Jersey. "If your financial situation wasn't great before the divorce, it isn't going to get rosier afterward."
Here's how to part ways without derailing your retirement.
Figure out your new monthly cash flow
Most people going through a divorce will want to start with the basics: Do a cash-flow analysis to understand how much income you have coming in and how much is going out. As a baseline, compare your cash flow during marriage with your estimates for the single life. For most people, this will be a reality check, as you may need to reduce your expenses, increase your income, or both, to stay in the black.
While you're crunching numbers, don't forget to consider how divorce will affect your tax rates and deductions. "Your marriage status as of December 31 determines how you will file that year," says Emily Sanders, managing director of United Capital in Atlanta. If you're already retired and claiming Social Security, it could also affect the percentage of benefits that are taxable.
Alimony introduces yet another twist. Whereas alimony was previously deductible for the payor and taxable for the recipient, changes to the tax law mean that it is neither deductible nor taxable.
Recalculate your retirement savings
If you haven't retired yet, use your new cash-flow to update your retirement savings goal and recalculate how much you need to regularly save to get there. Most plan providers, including Vanguard and Fidelity, have online calculators that make it easy to quickly check these numbers.
One silver lining of gray divorce is you can take advantage of catch-up contributions. Anyone age 50 and older can contribute up an additional $6,000 in a 401(k) or other employer plan, and up to $6,000 in an individual retirement account (IRA).
Of course, knowing how much you can save going forward is the easy part. Most divorces - particularly for older couples - will entail dividing retirement assets. After alimony, this is the biggest source of contention, according to an American Academy of Matrimonial Lawyers survey. Your divorce attorneys and other advisors can help you and your ex reach an agreement. Typically that will be codified with a qualified domestic relations order (QDRO) that gives a person rights to a portion of his or her ex-spouse's retirement benefits.
Understand divorce's impact on Social Security
Social Security raises its own sets of questions, particularly if one spouse earned significantly more than the other. The short version is that as long as you've been married for at least 10 years and don't remarry, you are entitled to half of your ex-spouse's Social Security benefits at their normal retirement age. "As long as you're 62 or older, you can collect benefits even if your ex delays filing for benefits," says Sanders, though they'll be permanently reduced if you begin taking them before your full retirement age. You'll continue to have a claim on these benefits even if your spouse remarries. "But if you get remarried, all bets are off," she says.
Update your estate plan and other affairs
While you're going through the fine print of retirement plans and Social Security, take the time to update all of your key documents to change your beneficiaries and other directives. "Anything to do with estate planning needs to be updated," Gaudio adds. "Most spouses name each other as executors and powers of attorney. All that stuff has to get changed."
Don't overlook health insurance
If you've been covered under your spouse's health insurance and are too young to qualify for Medicare, divorce can throw yet another wrench into your finances.
Ideally, you can sign up for health insurance through your own employer - you don't need to wait until open enrollment in the fall. If that isn't an option, you'll want to price out the benefits and premiums of a health care exchange available under the Affordable Care Act. As a last resort, you can continue with your ex's benefits under the Consolidated Omnibus Budget Reconciliation Act (COBRA), says Gaudio. Keep in mind that these policies are often expensive and only available for up to 36 months.
Consider delaying retirement
Divorce is financially disruptive even in the best of circumstances, but it can also open doors to meet new people, pursue different interests, and reboot your career. And when your children are grown up, it's a lot easier to cast a wide net and relocate for a job.
Meanwhile, working just a little bit longer can have a profound impact on your retirement outlook. A study published by the National Bureau of Economic Research (NBER) last year found that delaying retirement by even a few months can be as powerful as saving an extra percentage point of your salary over the course of 30 years.