Retirement Planning for Couples with an Age Difference

Retirement Planning

 Kelsey Abbott By: Kelsey Abbott

Retirement planning can be a daunting task with multiple factors to consider. A spouse will always play a significant role in this aspect of life. Given the recent trends when it comes to dating and marriage, a growing number of couples are finding themselves in a relationship with a notable age difference.

That “age-gap” can cause complications as couples plan for retirement, both logistically and emotionally. To begin, spouses may have different ideas about the right time to end their careers or potentially transition to a "second act."

In addition to coordinating retirement dates, there are significant financial aspects to consider, from social security benefits to healthcare to tax implications.

Coordinating Retirement Dates with An Age Gap

Put simply, there are three main strategies or options to consider. First, the younger spouse could consider early retirement, with the main benefit being both spouses will be able to enter their retirement years together.

That said, this approach can cause conflict if the younger spouse isn't ready to leave their career quite yet. If they're in the prime of their career, or if it's not financially feasible to operate without their income, it may not even be a consideration for the younger spouse to retire early.

Another strategy is for the older spouse to continue to work in their current role, or on a part-time or self-employed basis, or even pursue a second-act career until the younger spouse is ready to retire. It is important to consider whether the older spouse would like to continue working after they have already reached retirement age.

The third, and most common, strategy is to have a “split household.” This approach includes the older spouse is fully retired, and the younger is still working. While this may achieve the goals of each spouse independently, it creates a need to thoughtfully align a variety of factors within the financial planning process. Including, but not limited to insurance, investments, tax planning and health insurance.

A retirement account withdrawal strategy also becomes increasingly critical when one spouse retires much earlier than the other. Building a decumulation plan for your retirement accounts will ensure that you don’t outlive your money.

How is Financial Planning Different for Couples with a Large Age Gap?

Because one partner will be reaching retirement age first, there are additional considerations when assessing finances for couples with a sizeable age difference. Here are just a few of those factors:

  • Estate Planning
  • Health Insurance Coverage
  • Long-Term Care
  • Tax Strategy
  • Required Minimum Distributions
  • Medicare Eligibility
  • Social Security Benefits
  • Withdrawal Allocations

Each situation will be unique, but couples with an age gap should be mindful of the implications that come with having one working partner and one retired partner.

Social Security Considerations for Age-Gap Couples

Many couples don't realize they have options when it comes to claiming their social security benefits. On the Social Security Administration website, you will be able to estimate how much you will receive if you start collecting at age 62, or if you wait until your full retirement age, between 66 and 67.

When there's an age gap and the older person is estimated to receive the larger social security benefit, it may be better for the older spouse to wait to claim that benefit. The longer the higher earner can wait, the higher the payouts will be for both spouses. In this case, it may be better for the younger spouse to collect early, as well.

If the higher earner waits, it can also increase the survivor’s benefits for the remaining spouse. Understand that each situation is different, and it's important to research your benefits to know how you can get the maximum social security benefit possible. 

Insurance Coverage for Couples with Age Gaps

As you approach the retirement phase of your life, the likelihood that you or your spouse will face significant healthcare costs increases. Insurance premiums can eat into your retirement accounts. That's why it's critical to understand the details of how you and your spouse will be covered after your working years.

If one spouse is still working, it may make sense to shift all coverage to their employer's group plan. Also, because one spouse will become Medicare-eligible earlier, it's important to understand what will be covered and what won't, so you don't end up paying for coverage you don't need.

Life Insurance and Estate Planning for Age-Gap Couples

The statistical likelihood for an age gap couple is that the younger spouse will outlive the older spouse. That’s why life insurance is such a key tool to give you and your spouse peace of mind that they will be taken care of. Life insurance is one of the most effective ways to build an asset that will provide for the surviving spouse. There are many options on the market, so it is important to understand your surviving spouse’s future needs when considering life insurance as part of your financial plan.

Navigating the loss of a loved one is extremely difficult, and that is why having a well-executed estate plan is crucial for any married couple. Thoughtful planning will ensure that assets are clearly titled and easily transferred to the designated party. An added layer of complexity can come in second marriages, where there could be multiple children or heirs, some of which are connected through a previous marriage.

Designating beneficiaries and creating transparent documentation can help avoid unnecessary conflict during the estate distribution process.

Financial Planning for Couples with An Age Gap

Retirement planning can be an overwhelming process for any couple. Add an age gap on top of that, and you bring an unlimited list of factors to consider. Because of the complexity of coordinating retirement dates, social security benefits, insurance coverage, estate planning, and taxes, many couples are turning to financial advisors for guidance and to help them plan for their financial futures.

An experienced financial advisor will evaluate your entire financial situation and give you actionable retirement and wealth management solutions to help achieve the goals of both spouses.

If you’re concerned about how an age difference might affect your retirement planning, it's worth considering how a financial advisor can help. Get in touch for more information.

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Kelsey joined Plancorp in 2020 as a Financial Planner. She has worked in the Wealth Management industry since 2013, where she specialized in investments and portfolio management. As a CERTIFIED FINANCIAL PLANNER™ professional, she is passionate about providing individuals with customized comprehensive financial planning. Her desire to go above and beyond to help people achieve financial wellness has allowed her to build strong relationships with clients. More »