Bridge the Gap: Retirement Planning for Couples with Age Differences
Retirement planning can pose challenges for couples with an age difference of 10 years or more. Aligning both partners’ financial objectives and timelines might be difficult, but developing a cohesive retirement plan that caters to their individual needs is essential.
This blog highlights seven points to help couples with age differences navigate retirement planning and achieve their goals together.
1. Align Retirement Timelines
Couples with substantial age differences must decide whether to retire simultaneously, with the younger spouse potentially opting for early retirement, or to retire according to their respective regular retirement ages. One alternative is for one or both partners to transition into retirement by taking part-time work. Whichever option they choose, couples will want to organize their finances accordingly and discuss lifestyle adjustments if one partner remains employed while the other retires.
2. Maximize Social Security Benefits
Age-gap couples should consider their Social Security benefits to maximize their retirement income. The ideal ages for claiming Social Security benefits will differ for each couple. For example, if one partner’s benefit is significantly higher, delaying their benefits might be advantageous to provide a larger survivor’s benefit for the other partner.
3. Evaluate Pension Benefits
Spouses with significant age differences and pension benefits should consider the outcomes of the different pension payouts offered in order to arrive at an election that best fits their situation and overall financial plan.
For example, while the Single Life option that pays the most in monthly benefit may seem attractive, couples should consider the effect of the passing of that spouse and the impact that could have on the surviving spouse’s income stream.
4. Rethink Traditional Investment Guidelines
Standard investment rules of thumb might not be suitable for couples with age differences, as they must account for a longer period to avoid depleting their portfolio and savings. They might consider allocating a larger portion of their portfolio to equities, in either their joint portfolio or the younger spouse’s individual portfolio. It can be helpful to consult a financial advisor to develop investment strategies tailored to their unique needs.
5. Plan for Health Care
Health care planning is a critical aspect of retirement for couples with age differences. If the older partner retires, they could potentially use the younger partner’s employer-sponsored health care plan to supplement Medicare coverage. If the younger partner chooses early retirement, they will want a way to cover health care costs until Medicare eligibility. Couples should investigate all available options, such as long-term care insurance, to help ensure adequate coverage.
6. Create a Comprehensive Estate Plan
A thorough estate plan is vital for couples with age differences. They might consider life insurance for the older spouse so that when they pass away, the policy will help provide for the younger spouse. Proper titling of assets and review of beneficiaries is essential to help ensure the younger partner is cared for, particularly in second marriages with children from previous relationships.
7. Take Advantage of Reduced RMDs
One advantage of having a spouse more than 10 years younger is that couples can benefit from reduced required minimum distributions (RMDs). Such couples are qualified to use IRS Table II (Joint Life and Last Survivor Expectancy) instead of Table I (Single Life Expectancy). The Joint Life Table II factor results in lower RMDs, which means that couples can preserve tax-deferred growth in their qualified accounts for a longer period. This is particularly advantageous for those who have significant retirement savings and want to minimize their tax liabilities.
However, if the younger spouse is not named as the primary beneficiary, this advantage is eliminated, and couples will have to follow the standard IRS Singe Life Table. This table requires higher RMDs and can result in a higher tax burden.
It is therefore important for couples to consider their beneficiary designations carefully to ensure that they are maximizing the benefits of their retirement accounts.
Final Thoughts
Although retirement planning for couples with significant age differences can be complicated, addressing their unique challenges can help them establish a robust foundation for a secure and enjoyable retirement. Aligning retirement timelines, maximizing Social Security benefits, adapting investment strategies, planning for health care, and developing an estate plan can all be helpful for these couples.
Given the complex nature of their circumstances, they might want to consider working with a fiduciary financial advisor who can offer unbiased, tailored guidance that addresses their specific needs. By seeking professional advice and taking a proactive approach to retirement planning, couples with age differences can successfully navigate their retirement goals together and pave the way for a prosperous and rewarding future.
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This material was generated using artificial intelligence (ChatGPT) and edited 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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