Planning for Retirement is never easy and going through the process is rarely simple. This can be further complicated by a significant age gap between couples. An age gap can cause differences in retirement dates, life expectancy, health, and more.
If you and your spouse have more than a few years between the two of you in age, the traditional retirement advice may not work for you. Mainly because, your retirement plan will need to provide for two individuals, while you are both encountering different stages in your life and careers. If you have an age gap between yourself and your spouse, here are a few considerations to take into account.
Consideration #1: Your Retirement Date
Deciding when and how to retire is one of the most critical details to consider when building your retirement plan. It can also be scary and complicated further by an age gap. If your spouse continues working while you are retired, how will the dynamic shift? Or, will you choose to retire at the same time?
If you choose to stagger the start of your retirements it can have a profoundly positive impact over the long term. For example, if your younger partner continues to work, they can maintain employer health coverage until you are both eligible for Medicare. Additionally, your spouse's earnings can reduce the need to withdraw income from your portfolio. Being able to delay that income can have a big impact on the longevity of your retirement savings.
Conversely, It’s not uncommon that the younger spouse retires early so you can both stop working at the same time and enjoy retirement together. Another option, if you're the older spouse and love your job, you may have no problem working a few more years. Ultimately, the decision comes down to your specific circumstances as a couple and your approach to life. Either way, it’s crucial that you consider this because the decisions you make regarding the beginning of your retirement chapter will impact how you plan financially.
Consideration #2: Social Security
Another key detail to be considered is when to begin collecting Social Security and there is no easy answer. If you and your spouse, as an age-gapped couple retired at the same time, your younger spouse may receive reduced benefits. Alternatively, if your younger spouse begins collecting benefits at age 62, the lifetime benefit could be drastically reduced.1
If you are an older spouse and have a stronger earnings record, it may make more sense for you to delay taking Social Security benefits for a few years. By waiting, your benefit will grow eight percent each year past your Full Retirement Age (FRA) up to age 70.2
Consideration #3: Your Investments
As retirement nears, traditional advice often centers around changing your investment strategy from a more aggressive, growth-oriented strategy to a conservative, wealth-preserving strategy. This decision could potentially have massive unintended consequences if your partner is significantly younger than you. This is where our Bucket Planning process will help to maintain a slightly more aggressive portfolio while preserving a portion of your assets for the begging of your retirement. This allows your retirement savings to benefit from long-term growth potential, ultimately benefiting your spouse later in life.
Structuring your assets for specific time horizons will allow your retirement portfolio to continue growing as well as avoid the Sequence of Returns Risk. Using this process will also allow you to plan for legacy assets. The legacy we are talking about is not referring to the kids. The most important legacy will surround the surviving spouse. As the older spouse moves on from this world, the younger spouse will lose a portion of the Social Security benefits and potentially be pushed into a higher tax bracket due to their filing status going from Married Filing Jointly to Single. You have to have a plan for that.
Consideration #4: Health Costs and Life Insurance
There is a major advantage to having a younger spouse: your younger spouse will likely be able to take care of you if needed. On the other hand, the younger spouse’s long-term care needs are then put into question.
Purchasing a long-term care policy for one or both of you may be beneficial to your relationship. In today’s world, there are many ways to accomplish this goal. Often, you can purchase a life insurance contract that will solve both your surviving spouse legacy issue while simultaneously providing long-term care if needed.
Alternatively, using a portion of your retirement portfolio as the younger partner to buy a Qualified Longevity Annuity Contract (QLAC) to cover costs is another available option. In this case, an income stream would begin years after purchase and allow you to create an additional income stream in retirement.3
Regardless of your circumstances, you can rest assured that there is a retirement strategy that fits your specific needs however you choose to approach retirement as a mixed-age couple. Going through the process of building your plan will help you and your spouse enjoy the time after your professional life, when you know age is no longer a factor in your life together.
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|About the Author
James M. Comblo , CFF
is a Partner and the Chief Compliance Officer at FSC Wealth Advisors. His greatest passion in the financial services industry is helping clients accomplish their dreams both with investments and their personal lives. To learn more about him click here.
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