Divorced Women at Retirement
This article describes the economic resources and economic well-being of future divorced women at retirement using data from the Social Security Administration project on Modeling Income in the Near Term (MINT). The MINT model projects that in the near term, there will be more divorced women of retirement age. Because fewer of those women are projected to meet the 10-year marriage requirement, the proportion of economically vulnerable aged women is expected to increase when the baby boom retires.
The Modeling Income in the Near Term (MINT) data system projects retirement income for persons retiring in the 1990s through 2020. Using those data, we examine the economic well-being of divorced women at retirement. The MINT data system improves upon previous estimates of Social Security benefits by:
* Measuring and projecting years of marriage to determine if the 10year requirement has been met,
* Projecting lifetime earnings until retirement and eligibility for Social Security retirement benefits, and
* Estimating lifetime earnings of former spouses.
MINT also makes independent projections of each retiree's income from pensions, assets, and earnings (for working beneficiaries).
As a result of changes in marital patterns, MINT projects that the proportion of women who are divorced will increase. At the same time, the proportion of those women who are eligible for auxiliary benefits is projected to decrease, for two main reasons. First, changes in women's earnings and work patterns result in more women receiving retired-worker benefits based on their own earnings. Second, an increased number of divorced women will not meet the 10-year marriage requirement for auxiliary benefits. Despite the projected decrease over time in eligibility rates for auxiliary benefits, the level of Social Security benefits is projected to change little between the older and younger birth cohorts of divorced women entering retirement.
According to the MINT data, the most vulnerable of divorced women will be those who have not met the 10-year marriage requirement. Poverty rates will be higher for them than for all other divorced women. This group of divorced women is projected to grow as more and more women divorce from shorter marriages. With more women divorcing and with fewer divorced women meeting the 10-year marriage requirement, the proportion of economically vulnerable aged women will increase when the baby boom retires.
Further research is warranted on this long neglected subject. Analyses of divorced women's economic well-being by major socioeconomic characteristics such as race and ethnicity and education are of particular interest. Such analyses can be supported by the MINT data system.
In 1998, about 21 percent of divorced older women were in poverty compared with 5 percent of married, 18 percent of widowed, and 21 percent of never-married older women.(1) Although divorced older women are poorest on several measures of economic well-being (Uhlenberg, Cooney, and Boyd 1990), the economic consequences of divorce for older women have seldom been thoroughly studied. Exceptions are Weaver (1997), Holden and Kuo (1996), and Crown and others (1993).
In the later part of the 20th century, marital histories fundamentally changed in ways that are well documented (see, for example, DaVanzo and Rahman 1993). The United States divorce rate sharply increased between the 1960s and early 1970s, fell slightly, and then leveled off at a relatively high rate in the mid-1980s (Goldstein 1999; DaVanzo and Rahman 1993; Ahlburg and De Vita 1992; Norton and Miller 1992). Although most individuals who divorce will remarry, the remarriage rate has decreased, and many second marriages end in divorce (Norton and Miller 1992). These trends imply that an increasing proportion of women will be divorced when they reach retirement.
This article describes the economic resources and economic well-being of future divorced women when they reach age 67.(2) To do that, we use projections of the major sources of retirement income from the Social Security Administration's (SSA's) project on Modeling Income in the Near Term (MINT).
The Social Security Program
Changes in marital patterns will undoubtedly affect the Social Security program and its beneficiaries, particularly those who are the most economically vulnerable.(3) Under Social Security, divorced women receive retired-worker benefits and/or auxiliary benefits as a divorced spouse, surviving divorced spouse, or widow. Divorced women with 40 or more quarters of coverage over their work lives are considered fully insured and receive retired-worker benefits.
Those benefits are computed by indexing annual earnings over a divorced woman's working life and then calculating her average indexed monthly earnings (AIME) and primary insurance amount (PIA)--the benefit payable at the normal retirement age, which is currently 65.
Auxiliary benefits are computed for each eligible marriage among the previous marriages reported by a divorced woman. Any previous marriage that ended in divorce is considered eligible if it was to a fully insured worker and lasted at least 10 years. Any previous marriage that ended in widowhood is also considered eligible if it was to a fully insured worker. The 10-year marriage requirement does not apply to widow(er)s.(4)
Auxiliary benefits are based on the earnings history of the ex-husband, deceased ex-husband, or deceased husband from each marriage. If the ex-husband is alive when a woman receives Social Security benefits, the auxiliary benefit (known as a divorced-spouse benefit) is effectively equal to one-half of the ex-husband's PIA, unless it is reduced for early retirement. If the ex-husband is deceased when a woman receives benefits, the auxiliary benefit (known as a surviving divorced-spouse benefit) is effectively equal to the deceased exhusband's PIA, unless it is reduced for early retirement. For a previous marriage that ended in widowhood, the auxiliary benefit (known as a widow benefit) is effectively equal to the deceased husband's full PIA, unless it is reduced for early retirement.
After computing an auxiliary benefit for each marriage, SSA compares the woman's retired-worker benefit with the highest auxiliary benefit over all eligible marriages. If she is not entitled to a retired-worker benefit, she receives the full auxiliary benefit as a divorced-spouse, surviving divorced-spouse, or widow beneficiary. If she is entitled to a retired-worker benefit that is less than the auxiliary benefit, she is considered to be dually entitled, and SSA supplements her retired-worker benefit with the difference between that benefit and the full auxiliary benefit to which she is entitled. Finally, if she is entitled to a retired-worker benefit that is more than the auxiliary benefit, she receives only the retired-worker benefit.
Thus, a divorced woman's Social Security retirement benefit depends not only on her own earnings history but also, to a large extent, on her marital history and the earnings histories of her previous spouses. Furthermore, a woman whose most recent marriage ended in divorce may or may not receive a benefit based on that marriage. Although she describes herself as divorced, at retirement she may receive a divorced-spouse benefit, surviving divorced-spouse benefit, or widow benefit from Social Security. In many cases, she may be ineligible for any of those auxiliary benefits. This distinction becomes important when we present the results of our analyses.
The MINT Model
SSA developed the MINT model with substantial assistance from the Brookings Institution, RAND, and the Urban Institute (see Butrica and others 2001; Panis and Lillard 1999; Toder and others 1999). Using MINT, we can estimate the economic resources of future divorced women when they reach age 67. MINT projects each woman's retirement income (Social Security benefits, pensions, assets, and earnings of working beneficiaries), changes in marital status, and mortality using the Census Bureau's Survey of Income and Program Participation 1990-93 panels matched to SSA administrative records.
MINT improves upon previous estimates of divorced women's economic well-being in retirement by: (1) measuring and projecting years of marriage to determine if the 10-year requirement has been met; (2) projecting lifetime earnings until retirement and eligibility for retirement benefits; (3) estimating lifetime earnings of former spouses; and (4) computing the level of Social Security benefits paid in retirement.