5 Tips for When One Spouse Retires Before the Other
Retirement planning can be complicated—but especially so when one spouse retires before the other. If you’re a couple facing staggered retirements, here are five financial tips to help make sure you’re ready for the change.
1. Prep Your Budget
As early as possible, update your budget and make sure the numbers work. This step becomes critical if one of you had an unexpected early retirement.
But even if you planned the retirement, you may be in for a surprise when you see the numbers. Suddenly, you’re moving from a dual-income household to a single-income one, and a budget will help you adjust to that change.
This is also a good time to talk about how you both envision the future. When couples retire separately, resentment can build in the absence of communication.
If you’re the retiring spouse, you may be eager for the experiences or hobbies that you’ve been putting off until retirement. If you’re the working spouse, you may expect your partner to pick up more household chores or get a part-time job.
Take the time to make sure you get on the same page about your future lifestyle and how you will afford it.
2. Get Your Health Care Covered
If you’re the retiring spouse, you’ll need health care coverage if you’re not age 65 and eligible for Medicare. You might find coverage under your spouse’s employer-provided health insurance, or you may need to buy a policy through a private insurer or insurance exchange.
If you’ve been covered by an employer health plan your entire career, you might be dismayed when you see the rather large bite that health insurance will take out of your budget. You may feel tempted to forgo insurance until you’re ready for Medicare.
Think twice before you do that, though. An accident or medical condition can be much more expensive than health insurance, and the costs could hurt your and your partner’s retirement prospects.
You might want to consider getting full-time or part-time work that will provide health coverage until you are ready for Medicare.
3. Keep Contributing to Retirement Plans
If you’re the working spouse, you may feel as though you should quit saving toward your retirement accounts, such as a 401(k) or IRA. After all, you’re on a single income now, so the temptation to put your retirement savings on the back burner is understandable.
But if you’re financially able, keep contributing. You want to retire feeling confident that you have saved enough to last the rest of your life. For 2021, you can contribute:
401(k) plans: $19,500, plus an additional $6,500 if you are 50 or older
IRAs: $6,000, plus $1,000 if you are 50-plus
You can also contribute to your spouse’s IRA as long as they are not working and have little to no income. This spousal IRA strategy can be a boost for your retirement plans.
To be eligible, your income must be equal to or greater than your combined contributions. You must also file a joint tax return (i.e., married filing jointly).
If you use the spousal IRA strategy, you can contribute a total of $12,000 in 2021, plus $2,000 in catch-up contributions if you’re both 50 or older.
4. Use RMDs Strategically
For tax-deferred retirement accounts like 401(k)s and IRAs, once you hit 72 (or age 70 ½ before 2020), you generally must begin required minimum distributions (RMDs).
If you’re the retiring spouse, consider using your RMD to pay for household expenses. That could free up the working spouse’s paycheck so they can apply it toward retirement account contributions, as discussed above.
Also, if there is a significant age difference between you two, you could be eligible for a lesser RMD amount. The IRS uses a different life expectancy table for IRA owners who have a spouse who is 10-plus years younger. Your spouse must also be your IRAs sole beneficiary.
5. Re-assess Your Investment Portfolio
This step especially applies to couples with significant age differences since your investments will need to cover a longer retirement time frame. If you are the older spouse, you might want to maintain a higher risk profile than someone your age normally would.
Having more risk exposure could help provide the returns that enable you both to enjoy a good, long retirement. In the same vein, you may want to reduce your withdrawal rate.
These are only considerations and may not apply to your situation. To help determine an appropriate portfolio for your needs and goals, consider talking with a financial advisor who can help you draw up a long-term investment strategy.
Don’t Be Afraid to Ask for Help
If you’re confused by the numbers or if your financial situation is complex, you might want to talk to a financial advisor with expertise in retirement planning. We generally recommend that couples (and individuals!) work with a fiduciary, fee-only financial advisor so they can feel confident that the advice is in their best interest.
Our fiduciary, fee-only financial advisory firm in Greenwood Village, Colorado, partners with couples facing all kinds of retirement scenarios—from retiring at the same time to retiring years apart.
Discuss your financial situation with a fee-only financial advisor. Schedule a complimentary discovery call.
This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice.
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