Retirement Planning When Your Spouse is Much Younger
The average age difference for couples is around three years. This means that most couples retire at more or less the same time and enjoy their retirement together. However, for couples with a large age difference, there could be 10 or more years between when they are due to retire.
Retirement planning when your spouse is much younger can be a bit challenging. For these couples, there are many questions they need to ask and plans they need to make if they are going to have a similar retirement together. Also the fact that the average American man and woman can now expect to live to 76 and 81 respectively, this could also pose further questions.
Here are some thoughts to consider to help you and your much younger spouse best prepare for your retirement together.
Should you retire at the same time?
The natural instinct most couples have (even those with a large age difference) is the desire to retire together. However, in order to do so, you will need to start planning earlier and saving much more than the average couple. This is if your spouse is much younger because the younger one of the pair will be retired much longer than the norm and will miss many years of employment and pension contributions.
My suggestion would be to talk about this and make sure not to rush with your decision. I know that it can be disappointing when one is already retired and waiting, but you need to do what’s best for you.
When a man retires, his wife gets twice the husband but only half the income.
– Chi Chi Rodriguez
The idea of retiring together is very tempting especially for the younger spouse but it may be costly. An additional five years of working for the younger spouse may not be a bad idea at all. Bottomline, it’s all about your finances and what you both want to do during your retirement years.
Social Security benefits
Our social security is based on averages calculated over our last 35 years of employment. If you have not worked for 35 years, any remaining year will be calculated as zero and will, therefore, reduce your average and subsequent pension payments.
This is accentuated by the fact that our last years in employment are often when we earn the most. Meaning that anyone who retires much earlier than normal will on average has a significantly reduced pension.
When it comes to social security benefits, each year you remain working beyond age 65, your yearly payments will increase by 8%. Not only does this make your pension much higher if you choose to remain working up to the age of 70, but your younger spouse will also be eligible to receive a higher surviving spouse benefit.
How about health insurance and Medicare
It is also important to add here that you do not become eligible for Medicare until you reach the age of 65. As those years before retirement has some of the highest insurance premiums, these costs will need to be planned for. For example, in Maryland, a normal healthy 55-year-old woman will pay on average $6000 per year for health insurance.
It is also not uncommon to pay a few hundred dollars or more for coverage each month. This is often the largest expense that couples are unaware of and have not planned for.
If you currently have a group health insurance, see if you can continue the coverage. Learn about your retirement health insurance benefits. Make sure to study and weigh your options.
As well as saving for health care for the younger spouse it is also worth thinking about long-term care insurance for the older member of the couple. This is because the cost of caring for someone with a long-term condition could greatly erode the savings you have made together. Meaning the younger surviving spouse may have to live for many years on a far reduced income.
It is worth noting here that this kind of insurance is very expensive and should only be considered if you have assets over $250,000 because those with little or no savings will normally be eligible for this care free of charge as part of Medicaid.
But what can you do to regain some or all of these losses and still make those increased insurance payments?
The important thing here is to plan your pensions around the younger spouse.
If they plan to retire in their 50’s or even 40’s you and your partner will need to save hard and make far higher pension contributions than what is normal for your age and wage bracket. In addition, investments in property and stocks could also provide a passive income in retirement.
David Blanchett head of retirement research at Morningstar recommends “a typical portfolio held by a retiree in his or her 60s would contain less than 50% in stocks, but that same retiree with a 50-something spouse will likely need a more aggressive approach, carrying about 60% in equities.”
For the older spouse, it may also be worth considering taking your pension as a joint-and-survivor annuity. Although this will reduce the amount of money you receive, it will continue to pay as long as one member of the couple is alive.
It is worth noting here that the younger the spouse is, the lower the pension payments will be. However, you can choose whether you want 50, 75 or 100% survivor annuity. This gives you the chance to balance between current pension payments and the future. This can provide a lot of peace of mind and security especially if one spouse outlives the other by many years.
But what alternatives do you have if the younger spouse is not able to retire early?
The older member of the couple could stay at work longer
Just like working for fewer years reduces the amount of money in your pension pot. Working for longer and not withdrawing any money will, therefore, increase the amount you will eventually receive when you retire.
Most pension policies state that you must start receiving payments by the time you reach 70. However, you can maximize what you will receive in the future by choosing to only receive minimum payments.
In turn, certain rules allow those individuals whose spouse is much younger to receive lower payments. For example, the Employee Benefit Research Institute state that a 72-year-old retiree with an IRA balance of $219,790 would be required to take $8,586 if their spouse is of a similar age, but just $8,357 if they are 61.
This saving keeps more money in your plan for later years, while also allowing further interest to be earned. This payment can be reduced even further if you invest in a Roth IRA because these payments are exempt from minimum distribution requirements, even after the age of 70.
Our retirement can be a very exciting and fulfilling time. Going on relaxing holidays, spending time with the grandchildren along with having the time to pursue your hobbies and passions. However, it can very be a tough time with many worries if we don’t have enough money to get by if death strikes our partner or long-term illness affects our partner or us.
These worries can be accentuated even further when a couple has a large age difference. If the younger spouse died unexpectedly at say age 55, it would be therefore much harder for the older spouse who was already retired. Most of the time the older spouse always expect that the younger spouse would look after him.
That is why in today’s post I provided you with a lot of information and tips to overcome these potential hurdles. However, the most important thing of all you need to do is to talk to one another. Knowing what you would both like and compromising (if needed) will then allow you to plan how you will fund your future.
Do you and your partner have a big age difference? I would like to hear from you.