HOW DOES DIVORCE AFFECT RETIREMENT SECURITY?
ALICIA H. MUNNELL, WENLIANG HOU, GEOFFREY T. SANZENBACHERABSTRACT. Divorce is disruptive, pervasive, and expensive. Although the divorce rate is no longer rising, about 40% of marriages will end in divorce. Given the prevalence of divorce, it is natural to wonder how much it impacts retirement security. 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. This paper investigates how divorce impacts the retirement readiness of divorcees and how the effect varies by household type. Using the framework of the National Retirement Risk Index (NRRI), this paper finds that the share at risk is 7% higher for divorced households than for those that have never experienced a divorce. This impact is substantial – for example, in an earlier study the impact of the Great Recession was found to be about 9%. Moreover, this paper finds that while couples with a previously divorced spouse and divorced single men are clearly worse off than their non-divorced counterparts, divorced single women do not appear disadvantaged relative to other single women.
JEL codes: J12; J26; A13; D1
Keywords: divorce; retirement security; retirement wealth
How to cite: Munnell, Alicia H., Wenliang Hou, and Geoffrey T. Sanzenbacher (2018). “How Does Divorce Affect Retirement Security?,” Psychosociological Issues in Human Resource Management 6(2): 44–55.
Received 14 June 2018 • Received in revised form 30 August 2018
Accepted 31 August 2018 • Available online 25 September 2018
doi:10.22381/PIHRM6220183