Retirement can be challenging for any couple with differing views about when, where, and how to retire. However, when there is a large age gap between partners, additional complexities arise. Couples with a significant age gap must plan for a much longer combined retirement period. Age plays a crucial role in financial planning because whether assets need to last for 10 years or 40 years makes a significant difference.
Age influences everything from investment strategy to withdrawal rates from pension plans and retirement accounts. Here are some challenges and strategies for couples with a significant age difference:
Retirement
Aligning the retirement dates for both spouses has the advantage that both will be able to enjoy their retirement years together. This can cause conflict if the younger spouse isn’t ready to leave their career quite yet.
Staggering retirement dates can bring advantages: for example, the working spouse can keep employer sponsored health insurance until both partners qualify for Medicare. And continued earnings reduce the need to dip into retirement savings.
Of course, if retirement dates, earlier or later, create lifestyle challenges, consider compromises like part‐time work for the older spouse for a few years and an earlier retirement date for the younger spouse.
Health Insurance
Health care is one of the largest expenses for a couple in retirement. If both spouses are working, they can maintain separate health coverage from their employers, potentially even after the older spouse is Medicare eligible. Once the older spouse leaves their employer, they can enroll in Medicare or, potentially, be covered under their younger spouse’s insurance. Comparing cost and coverage for both options will tell you the best choice. If the older spouse enrolls in Medicare after 65, then the younger non‐working spouse will need to find health insurance coverage offered through the state marketplace.
Social Security
Properly planning for Social Security is crucial. The younger spouse may live significantly longer and may need to rely on survivor benefits for an extended period of time. Survivor benefits are 100% of the highest Social Security benefits of a couple.
If the older spouse is the higher earner, delaying benefits until age 70 will increase them 8% per year for at least 3 years (24% higher in total), which will also result in a higher survivor benefit for the younger spouse. Meanwhile, the younger spouse might start receiving benefits at age 62 (when she/he is not working) or at full retirement age to maximize the total years of benefits. A comparison of taking spousal benefits and benefits on their own work record is also recommended.
Life insurance
It often makes sense for an older spouse to implement a permanent life insurance policy that pays a tax‐free death benefit to the younger spouse. Some policies even offer a rider to help pay for the costs of long‐term care, which can take some pressure off the younger spouse, should the older spouse face health issues later in life. The earlier you buy this, the cheaper it is.
Long‐Term Care
While long‐term care planning is important for all retirees, it can be especially important for a couple with a significant age difference. The younger spouse may be able to provide care, but professional in‐home care or at a care facility might also be needed. The younger spouse also needs to consider their end‐of‐life planning, making sure there is money left in case it is needed.
Investments
Typically, many investors adjust their allocations as they approach retirement to provide less volatile resources that they can tap for living expenses. When a couple has a significant age gap, this can get more complicated, because the younger spouse needs grow their investments to support their own retirement, while the older spouse may need cash for expenses, including RMDs (Required Minimum Distributions from IRAs and 401Ks).
Tax‐deferred retirement accounts are separately owned; the simplest solution could be for each spouse to allocate the resources in their accounts relative to their expected retirement dates.
For joint taxable accounts, the couple should assess how the account fits into their combined retirement plans and look at these assets in terms of risk and timing.
Estate planning
Estate planning for couples with an age difference should ensure the younger spouse will continue to be financially secure following the older spouse’s death. Work with your estate planning attorney to implement the necessary documents, including wills, trusts, financial powers of attorney and healthcare powers of attorney.
We have not touched on children and a few more topics. This can be complicated.
For couples with an age difference the importance of financial planning cannot be overstated. By addressing longevity risk and setting clear goals and expectations, they can overcome many obstacles that stand in the way of a healthy relationship — so they can focus on building a future together. We are here to help and make the complications manageable.
