In general, Americans who went through a divorce or job loss are more likely to tap into their retirement accounts early, studies find. According to a working paper by economists Frank Stafford of the University of Michigan and Thomas Bridges of the University of Delaware, divorced households are 9.5% more likely to attain “fast cash” by drawing from their retirement accounts, and they’re 11.8% less likely to continue saving for retirement.
Divorced women are especially vulnerable. An Employee Benefit Research Institute (EBRI) study found 43% of divorced women were very or somewhat confident when it comes to their ability to fund a comfortable lifestyle for retirement, compared with 76% of married women. The EBRI report says women in general had lower levels of retirement confidence than men, and divorced women were the least confident.
The inequities women face in and out of the workforce—from the gender pay gap to feeling obliged to care for family and the lack of financial familiarity among female workers—can contribute to this lack of confidence. “Women are likelier to be caregivers, but also have less income, so even if they are getting alimony from the divorce, they may not even be able to make up that additional amount that males can being the main earner,” says Craig Copeland, senior research associate at EBRI.
Divorce proceedings are also an expensive process. A survey by Bankrate found the average cost of a divorce in the United States is around about $15,000 per person. “Divorce is one of the biggest shocks to a person’s finances,” says Laura Varas, CEO and founder of Hearts & Wallets. “It’s a massive financial decision that has implications that reverberate for your entire life. It’s an acrimonious process in many cases.”
According to research from Hearts & Wallets, women are more drawn to property than assets. Studies showed divorced women were more likely to keep the house than to split retirement plans, and they were also more likely to spend their income on housing and utilities rather than retirement. Thirty-eight percent of divorced women older than 59 allocated 50% or more of their spending to housing and utilities compared with 30% of divorced men.
Once women come close to, or are even in, retirement, they may consider downsizing or cutting the costs of spending. Forty-two percent of women age 59 and older say they are considering moving to a smaller, less expensive home to free up money to fund retirement.
Plan sponsors searching for ways to help female workers, and especially those who are divorced, need to look beyond standard education, Varas notes. Adding tailored financial advice that covers all aspects of financial well-being, not just retirement, and pinpoints specific concerns, such as housing, can be a big improvement. “If they want to help women find ways so they don’t have to tap into their retirement accounts, the biggest thing they can do is help women with their housing situation,” Varas says.
While workers can apply for retirement account loans and establish sidecar savings accounts, having easily accessible advice, starting at the beginning of employment, is key. Employees value additional resources beyond typical retirement education, Copeland explains. “Plan sponsors must prepare workers for potential emergencies by thinking about more than just retirement savings,” he says. “Once an employee is in that situation, divorce can get very messy very quickly, and there isn’t a lot that you can do.”
According to the EBRI research, both divorced women and men are unsatisfied with the education materials they receive from their retirement plan. “It wasn’t very appealing or effective with divorced women and men because it didn’t take into account their circumstances,” Copeland continues. “Generic retirement savings education isn’t going to work well in their situation.”
Varas adds that, for divorced women, specifically, a lecture on retirement savings is unnecessary and unproductive. Instead, hearing from female financial advisers with similar experiences proves effective. Giving advice that goes beyond the workplace resonates better than what feels like a sales pitch for the retirement plan.
Only when employers begin to realize this will workers, and particularly divorced ones, appreciate the value of retirement savings. “The advice has to come from a place of truly wanting to help,” Varas says. “If they truly do want to help, it has to be said from an overall context of their life that includes their living, families and everything. Not just retirement.”
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