How To Be Richer In Retirement: Get Hitched Or Stay Hitched

Mar 4 2014, 3:31pm CST | by

How To Be Richer In Retirement: Get Hitched Or Stay Hitched
Photo Credit: Forbes Business

For all the buzz right now about gray divorce, it turns out that getting married – or staying married – is good for your bottom line during retirement. The flipside is that baby boomers who never married stand a greater chance of being broke during what ought to be their golden years.

That’s the upshot of a report issued last week by GAO, the research arm of Congress. “Trends in Marriage and Work Patterns May Increase Economic Vulnerability for Some Retirees” which downloads here as a PDF, uses 2012 data to estimate the poverty rates for people 65 and over, based on marital status and sex.

The poverty rate increased drastically as seniors lost their spouses. It rose from 4.6% for married people, to 13.5% for widows and widowers. But it was even higher – 19.4% – for those who never married. Gender-based differences were most profound among divorcees: For men the poverty rate was 10.9%, while for women it was 18.1%.

“The financial benefits of marriage can carry over into retirement as couples continue to pool resources and assist each other as the risks of disability and deteriorating health increase,” the report says.

Still, the reasons for the disparity go beyond coughing up single supplements on cruises, not being able to split housing costs and having no earthly need for economy sizes at Costco. Far more significant are the various retirement benefits available to spouses past and present, but not to folks who never tied the knot. For example, if a marriage lasted at least 10 years, a divorced spouse – assume it’s the wife – may be entitled to receive up to 50% of her former husband’s Social Security benefits if he is still alive, or up to 100% if he has died.

With company retirement plans, if the account is a qualified plan (a category under federal law that includes a defined-contribution plan, defined benefit plan, Keogh plan for the self-employed and 401(k) – but not an IRA) the Employee Retirement Income Security Act of 1974 gives your spouse the right to be the sole primary beneficiary of the account. To name anyone else, you need your spouse’s written consent. (These accounts are often the subject of divorce settlements.)

There are no comparable rights with IRAs, but the law gives special privileges to spouses who inherit the funds. Unlike other inheritors, who must begin making withdrawals by Dec. 31 of the year following the account owner’s death, a spouse – let’s assume it’s the wife – who inherits an IRA or company plan has another option. She can roll the assets into her own IRA and postpone required minimum distributions until the year after she turns 70½. (For more about retirement accounts, see my post, “Inherited IRA Rules: What You Need To Know.”)

As a result of the Supreme Court’s June decision in United States v.Windsor invalidating a key provision of the 1996 Defense of Marriage Act or DOMA and subsequent developments, at least some of these retirement benefits will also be available to same-sex married couples, and others may ultimately be once the federal government irons out certain incongruities.

Archive of Forbes Articles By Deborah Jacobs

Deborah L. Jacobs, a lawyer and journalist, is the author of Estate Planning Smarts: A Practical, User-Friendly, Action-Oriented Guide, now available in the third edition.

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Source: Forbes Business


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